The Federal Government is to raise N135 billion in bonds next week according to Reuters. The bonds are reopening of pevious issues. N35 billion worth of bonds due in 2021 will be raised in addition to N50 billion worth of bonds maturing in 2027 and 2037 respectively. A bond reopening is simply raising additional amounts of a previously issued security. A reopened issue has the same maturity date and interest rate as the original issue, but a different issue date and often a different price.
Why the bond raise ?
The Federal Government has embarked on the debt raise to plug a N2 trillion deficit in this year’s budget. A sharp drop in crude oil prices, and production volumes last year pushed the economy into a recession, necessitating the need for an expansionary budget. Foreign investors have also shown appetite for Nigerian debt due to low yields elsewhere. The country is also considering raising another Eurobond in a month or two, and switching short dated debt to US treasury bills.
There could be a red flag ahead
Several analysts have however raised concern about the government’s increasing debt burden. Nigeria’s economic fortunes are closely tied to crude oil, and a further oil shock or militant attack could leave the government struggling to pay its debts. Central Bank of Nigeria (CBN) Governor, Godwin Emefiele had warned at the last Monetary Policy Committee (MPC) meeting that the economy was still in a fragile state, and the government needed to act fast. A projected increase in US interest rates later in the year could also lead to foreign investors moving their funds elsewhere.