Abuja - Nigeria plans to reduce its domestic borrowing next year while increasing cheaper overseas debt to lower costs in Africa's second largest economy, the finance minister said on Friday.
Annual domestic borrowing is set to fall to below 500 billion naira ($3.15 billion) in the 2014 budget, from 577 billion this year, Minister Ngozi Okonjo-Iweala said.
Nigeria's ratio of overseas debt will to around 40 percent of all debt over the next three to five years, from 12 percent currently, to lower its funding costs.
This will include issuing 80 billion naira in global depository notes and a $1 billion Eurobond this year.
Debt investors are taking a growing interest in Africa's second biggest economy, but some worry about the government's propensity to misspend its oil windfall.
Eight years ago Nigeria was forgiven some $18 billion of external debt by the Paris club, a deal Okonji-Iweala brokered, so the prospect of it issuing a whole load of new external debt has raised alarm bells.
"No one in government is supportive of a return ... to high indebtedness. Having gone through tremendous stress during the quest for Paris Club debt relief, I am committed to a Nigerian economy that is fiscally prudent," she said in a statement.
But Nigeria, like many other countries in Africa, has been tempted by cheap money spilling out of low-yield Western nations and Japan in search of better returns on emerging markets.
Africa's top oil producer has a reliable flow of foreign exchange earnings from its 2 million barrel per day crude export business, making it relatively attractive to lenders.
"We must learn that domestic debt should be incurred sparingly at modest and manageable rates so that government is able to service it," she said, but she committed only to "slow down the increase in our overall debt stock," not reduce it.
Annual domestic borrowing fell from 852 billion naira in 2011, to 744 billion in 2012, and to 577 billion in 2013, Okonjo-Iweala said.
Nigeria's total borrowing has risen from around 12 percent of GDP in 2006 to 21 percent now. This is still far lower than struggling developed economies but higher than fellow emerging oil and gas dependent states like Russia, Libya and Kazakhstan.
Okonjo-Iweala hopes this will fall to 17 percent by 2018, as Africa's second-biggest economy switches into cheaper debt.
However, economists believe pressure to borrow more domestically will increase next year as Nigeria approaches elections in 2015.
Before previous elections, patronage has very quickly drained state coffers. Civil servants were given a 53 percent salary hike ahead of the 2011 vote.
Africa's second biggest economy currently has total domestic debt of around 6.49 trillion naira ($41 billion) and external debt of $6.7 billion.
Analysts have broadly welcomed Nigeria's move to cheaper foreign loans, noting that global low interest rates in contrast to tight monetary policy at home will help reduce debt service costs and free up money to invest in infrastructure.