By Chesa Chesa
State House Correspondent, Abuja

The proposal was approved on Wednesday by the Federal Executive Council (FEC) after it deliberated on seeking relief from its domestic creditors to whom it owes N1.3 trillion, in line with the upbeat tempo in the quest for debt relief from foreign creditors.

Finance Minister, Ngozi Okonjo-Iweala, told journalists in Abuja after the meeting that the idea of domestic debt waiver was, however, dropped because of the negative impact it would have on the economy.

The meeting was chaired by President Olusegun Obasanjo.

According to her, the suggestion had been to ask the Central Bank of Nigeria (CBN), to whom much of the debt is owed, to grant the government the relief while further loans are monitored to avert another build-up.

The government is currently servicing domestic debts with N185 billion, higher than the N183 billion used to service foreign debts of about $38 billion.

Okonjo-Iweala said floating the bonds in seven monthly installments would mop up excess liquidity in the economy and ensure that macroeconomic stability tallies with falling interest rates.

Her words: “The government has been absent from the bond market for 17 years and then came back with a bond issue last year and we are following this up so that we have a regular programme.

“But a different thing is that this time we are focusing mostly on restructuring of domestic bonds. You know that many of them, almost 80 per cent, has short tenure and we want to reduce it from three to six months treasury to about three years’ bonds”.

She said floating the bonds would ease the burden as well as lower the cost of domestic debt servicing since it would come with longer maturity.

“Even as we are focusing on trying to tackle the issue of our external debt, we must not forget that we also have internal debt that needs to be restructured. This is what we are doing and we are expecting to float between N70 and N140 billion, depending on the appetite of the market for these bonds.

“We will use most of the proceeds to restructure the existing bonds and lengthen their maturity. We want to do this in seven monthly installments, just to make sure we don’t overstretch the market at about N20 billion each. I think this will also be very helpful towards managing the liquidity issue in the economy.

“It is an important part of the instruments we are deploying to make sure we have macro-economic stability that will lower our domestic debt profile because interest rates are falling now and it is also good.

“It is also good that we restructure and lower the domestic debt and lower the amount of money used in servicing the debt. So there are a lot of benefits to this restructuring programme”.

Okonjo-Iweala argued that the measure would also steer government away from financing programmes through Ways and Means.

“Last year, our access rate to Ways and Means was so limited that the Central Bank lost N7 billion in surpluses that it would have had. We have continued the same practice this year. But when we introduced the fiscal discipline into the programme, the Central Bank of course agreed with us that this a good thing even though they are losing money.

“Last year, we had access to 10 per cent of Ways and Means and this year we are talking about five per cent. You know the law allows 12 per cent. So I think we are doing extremely well.

“By the end of the year, unlike in the previous years when we had access to Ways and Means, we had to roll it over into debt. Last year, we did not do any of that and this year we have no intention”.

Her counterpart in the Federal Capital Territory, Nasir el-Rufai, announced the FEC’s approval of a N14.2 billion contract to increase water supply to Abuja to 30,000 cubic litres per hour.

It was awarded to Biwater Nigeria Limited and would be completed in 24 months.