FG to loan cash-strapped states N90bn — Adeosun; says Nigeria favours external debt over domestic borrowing

Federal government has concluded plans to loan its states a total of 90 billion naira, in its latest effort to augment their monthly income and ease strain caused by plunging oil revenues
According to Minister of Finance, Mrs Kemi Adeosun, the funds will help tide the 36 states over for a year as they get their finances in order.
Adeosun who made the disclosure, late Tuesday, also said loan is structured as 50 billion naira for three months and then 40 billion for nine months. She did not say what the interest rate on the loans would be.
“It is a loan and it is fully repayable, although it has a secured tie against future dividends, revenues and any amount that government might owe the states,” Adeosun said at a meeting with state finance commissioners. “The loan is a bond and it has been guaranteed by the federal government.”
Several Nigerian states borrowed in the domestic bond market and from banks to fund infrastructure projects at the peak of oil prices. But as crude prices dropped, many states have been unable to pay bills or salaries.
Last year, several state governments got financial help from the central bank and Debt Management Office, to clear a backlog of unpaid salaries and other expenses after their combined debts climbed to around 658 billion naira.
In April nearly two-thirds of states struggled to pay salaries despite a federal bailout, the government said. It then allowed them to defer loan deductions of 10.9 billion naira for March so that they will have funds to cover salaries.
Adeosun said the states have signed up to a fiscal plan that would help them increase internally generated income and cut costs. That was part of a list of 22 requirements they must fulfill before getting the loan.
States are also required to submit an updated debt profile regularly to the debt office and will not be allowed to borrow from commercial banks, as part of the requirements.
Meanwhile, Adeosun has also disclosed that Nigeria will borrow more abroad in foreign currencies than domestically, to take advantage of lower interest rates and to allow local banks to lend to small businesses.
According the minister, Wednesday, government wants to switch its debt mix so that 40 percent of loans would come from abroad, compared with 16 percent now, and extend its debt maturity profile.
It plans to borrow as much as $10 billion from debt markets, with about half of that coming from foreign sources, to help fund a budget deficit worsened by the slump in oil prices that has slashed revenues and weakened the currency.
Adeosun met international investors last week on a non-deal roadshow in London as Africa’s biggest economy explores fund-raising options to finance its record budget deficit. She plans to continue to engage with investors.
“As we are moving more of our debt to dollars we need to focus more on exports, especially non-oil exports,” she told reporters, adding that the government approved the foreign borrowing plan “after much debate”.
Adeosun said cabinet members discussed how to make exports easier, including port reforms to increase agricultural exports, so the country can generate hard currency to repay dollar loans.
Nigeria hopes to almost double non-oil revenues this year, to offset the decline in oil revenues.
Minister of State for Budget and Planning, Zainab Ahmed said the debt strategy is aligned with the country’s medium-term plan to move away from short-term loans and to shift government borrowing from the domestic market to cheaper external sources.