Frontline economist, Bismarck Rewane, has called on the National Assembly to quickly grant necessary approval for the issuance of $500 million Eurobond requested by Acting President, Yemi Osinbajo, stressing why the loan request is in the best interest of the nation.
He gave the explanation in Lagos while addressing the media through a Skype call.
Rewane said that Nigeria’s 2016 budget was running on a deficit of about N2.3 trillion that needed to be quickly defrayed through cheaper sources of funding, in order to close the lagging 2016 financial year of the nation, and usher in the 2017 budget that is already in the works.
According to him, the $500 million foreign loan will put the fiscal situation of the country in a better position, especially now that the country is undergoing recession; since the Acting-President said in his letter that the funds will be spent on capital expenditure in order to have a multiplier effect on gross domestic product (GDP) of the nation.
The economist also pointed out that the $500 million Eurobond was cheaper and more lucrative than borrowing from domestic sources, because the foreign loan was going to be accessed at an interest rate of 7.5 percent as against the 18 percent the federal government pays as interest rate for borrowing locally through the issuance of Treasury Bills.
He said: “The budget is an estimate of expenditure and revenue. From all indications in the budget proposal, we have revenue that is going to be below of our expenditure by N2.3 trillion which is a deficit. About 50 percent of this is going to be funded from international sources.
“The $1 billion Euro bond is part of that funding. The $500 million the Acting-President has asked for is an approval to use half of this $1 billion Euro bond to fund this deficit for capital expenditure purposes.
“Let us ask ourselves: this money is coming at about a rate of 7.5 percent. It was eight times oversubscribed. To all intents and purposes, it is cheaper than borrowing locally. Right now the average rate at which the federal government is borrowing in the Naira market for treasury bills is as high as 18 percent for 365-day money.
“Now if you got this money at about seven percent and use it for capital projects, it actually puts the Nigerian fiscal position in a better state than it would have been, if we funded it domestically.
“Also the fiscal situation of the country is better because we are more borrowing money in ways that are lucrative and more beneficial to ourselves. The point is not just about borrowing money but using it for capital expenditure which will have a multiplier effect on GDP; that is; inclusive growth.
“So, I feel more comfortable by doing something even if it is not enough. It is less than 15 percent of the fiscal deficit. But it is better to use that and to substitute some of this domestic borrowing with this cheaper international borrowing.
“It is also not a substitute for other monies that are going to come from multi-lateral sources such as the World bank, the Africa Development Bank, and the Chinese Export Aid Agencies. With that entire funding put together – the borrowing plan of Nigeria is to raise about five to $6 billion this year in 2017. So I think we are on a good direction albeit these are early days.”