Efforts to reduce the nation’s stock of external debt received a boost last week, as the two participating investors offered an unprecedented discount of 25.5 pence on each dollar of debt instrument purchased.

The means that the country paid just only 74.42 pence each at the 137th debt auction sessions conducted last week.

The unprecedented discount offered by the investors, it was gathered might not be unconnected to the heavy depreciation suffered by the naira in recent times, a development which has reduced the gap between the official exchange rate and the parallel market rate.

With the official exchange rate at about N128 to a dollar, it means participating investors now have more naira value to each dollar of capital imported through the DCP. This increased naira value added to incentives inbuilt in the DCP thus making the nation’s debt instrument more attractive.

Results of the 137th conversion auction session released last week showed that each of the two participating investors bided for $2.5 million of the nation’s external debts in promissory notes at an offer price of 74.42 cent, hence on discount of 24.58 pence, which far surpassed discount offered by investors in past auction session.

Consequently the actual amount redeemed by each investor translate to $1.240 million or N158.203 million, combined together both investors bided for$2.48 million or N316.406 million.

Subtracting the discount offered by the investors, the actual amount redeemed drops to N.846 million or N235.470 million which means the country redeemed N316.406 million worth of external debt, paying just only N235.470 million hence reaping 80.9 million naira discount.

According to the auction result, all the amount redeemed was invested into the cash, gifts and grants section hence increasing the total amount invested into the sector under the DCP this year to N902.823 million naira.

The DCP was introduced in 1988 as the only non-traditional method of managing the nation’s stock of external debt currently put at $28 billion. Though the primary aim of the programme was to reduce the external debt, it was also designed to facilitate inflow of foreign capital into the economy.

Under the scheme, investors intending to import capital from abroad, purchases the country’s debt instrument at the international secondary market of sovereign debt, sells the debt instrument at a discount to the Central Bank of Nigeria (CBN) which serves as the DCP secretariat.

The CBN pays for the debt instrument in naira thus conserving the nation’s foreign exchange, while the investment financed enjoys various incentives in-built into the DCP programme.

Babajide Komolafe, Vanguard (Lagos), July 29, 2002