Contrary to investors’ projection concerning Nigeria’s debt profile for 2019, it has been disclosed that the Federal Government would put a stop to borrowing from the international debt market as the government has opted for domestic debt market.
The Debt Management Office (DMO) said the government would no longer seek funds in the international debt markets for the remaining months in this year. This is contrary to investors’ projection on the country’s debt financing for 2019.
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In 2018, Nigeria issued a record of $10.7 billion of international bonds, and investors predicted that more would be offered in 2019 to cover the shortfall, which according to Bloomberg, is projected at N2.5 trillion ($6.9 billion). In September 2019, a strategist at the Bank of America Merrill Lynch, Rukayat Yusuf, had said the government was expected to issue at least $2.6 billion in Eurobonds in the last quarter of the year.
Why the suspension? The new direction by the government was made known by DMO’s Director-General, Patience Oniha, who stated that due to the coming to an end of the implementation of the 2019 budget, the government would not be selling international debt this year. So, the government would depend on the domestic debt market to raise N802.8 billion in 2019. This is part of its new domestic borrowing plan.
What you need to know: There was a three-year plan approved by President Muhammadu Buhari’s administration in 2016 to borrow more from the international debt market. It was stated that 40% of its loans were projected to come from abroad in order to reduce the cost of borrowing and assist in funding Nigeria’s high budget.
According to the report, the last external debt of Nigeria was a Eurobonds worth $10.87 billion at the end of June 2019. This was a step higher compared to the Eurobonds at the end of June 2018 which was $8.5 billion.
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Sudden U-turn by government: The Debt office had reiterated in June that the government planned to issue Eurobonds this year after a report stated otherwise. The claim that part of FG’s external borrowing this year didn’t include Eurobond was denied as it was stated that though the government intended to seek cheaper funds from multilateral and bilateral lenders, the remaining balance would be raised through Eurobonds.
However, the recent statement has nullified the DMO’s statement.