FG’s Eurobond Plan Negative For Nigeria’s Debt Stock –Experts


Analysts have said the Federal Government plan to raise foreign currency loans from the Eurobond market is negative for the nation’s debt stock. It would be recalled that President Muhammadu Buhari recently asked Nigerian Lawmakers to approve $6.18 billion foreign loans to plug in its budget deficit for 2021.

Nigeria has concluded a plan to raise $3 billion from the Eurobond debt market amidst unfavourable borrowing rate in the space after the yield on a 10-year U.S Treasury bond increased as inflation surge in the country.

In a reaction, the Debt Management Office (DMO) said the proposed capital raising is the new external borrowings provided in the 2021 Appropriation Act to part finance budget deficit.

In other words, the new capital raising has been already been approved in the budgetary process by the Executive and Legislators”, DMO said.

It said Buhari’s presentation is to comply with the provision in the DMO’s Act, saying the proceeds are to be deployed to capital projects in various sectors of the economy.

Last week, the DMO said Nigeria’s public debt stock as of March 2021 has jumped to N33.107 trillion.

Chapel Hill Denham said its key takeaway is that Nigeria’s total public debt rose by 58 basis points to N33.11 trillion, from N32.92 trillion recorded as of December 2020 after adding US$87.2 million in the first three months in 2021.

Notably, a 2.11%  increase in domestic debt to N20.6 trillion, which analysts considered as a fallout of a 3.1% increase in FGN debt to N16.5 trillion drove debt higher during the period.

On the other hand, external debt moderated by 1.85% in the first quarter to N12.5 trillion, compared to 12.7 trillion recorded in December 2020.

“In our view, we see scope for higher public debt, due to a stronger prospect for a substantial foreign currency borrowing, especially via Eurobond.

“In fact, we understand that the FGN has concluded plans to issue Eurobonds for 2021, with a plan to raise up to US$6.14bn (N2.34tn), a negative development for debt stock”, Chapel Hill Denham said in a report.

Meanwhile, Nigeria’s local currency, Naira has continued to be struggling in the currency market. Similar to the previous week, liquidity at the Investors and Exporters window declined, this time by 18% week on week on average to $126 million.

Consequently, the exchange rate depreciated against the greenback by 12 basis points last week to N410.80. In the parallel market, the Naira traded flatlined, closing at N502.

Hence, analysts said the premium between the IEW and parallel rates remained elevated at 22%. Elsewhere, the FX rate remained unchanged at N380.69 at the SMIS windows as external reserves fell by 48 basis points to US$34.01 billion.

Source: Market Forces

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