The Federal Government has announced plans to raise approximately $1.7 billion through the issuance of Eurobonds to help finance the revenue shortfalls of the 2024 budget.
The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, disclosed this on Thursday at the State House in Abuja.
Edun also revealed that the government intends to issue Islamic Sukuk bonds to raise an additional $500 million as part of its international money market instruments to generate capital.
The 2024 budget of N28.7 trillion (approximately $17 billion) includes a projected deficit of N9.1 trillion ($5.2 billion), which would be financed through borrowing.
While Edun did not announce the issuance dates for the foreign bonds, he stated that authorities are working to submit the borrowing plan to the National Assembly this year, with the aim of securing approval “as soon as possible.”
He noted that the new borrowing “is part of the Nigerian 2024 Appropriation Act as amended.”
Earlier this year, Nigeria raised about $900 million in its first domestic sale of dollar-denominated bonds.
Projected Increase in External Debt
The proposed Eurobond aims to raise capital for the country and reintroduce Nigeria to the international debt capital markets.
However, this also implies a potential increase in Nigeria’s external debt, currently estimated at $42.9 billion, which constitutes approximately 39% of the country’s total debt stock.
- To date, Nigeria has largely managed its external borrowing and has focused primarily on domestic debt, relying on various Central Bank money market instruments such as Federal Government Bonds, Treasury Bills (T-Bills), and Open Market Operations (OMO).
- In naira terms, the country’s domestic debt has surged to approximately N66.9 trillion as of the second quarter of 2024, representing about 60% of the total debt stock.
- Moreover, the downside of foreign currency-denominated debt lies in the higher interest costs for debt servicing.
- This challenge is compounded by the naira’s devaluation, which will further escalate the cost of servicing external debt.
What you should know
In September, Nigeria issued its first $500 million domestic foreign currency-denominated bonds, which were oversubscribed to $900 million.
The Minister of Finance Wale Edun then said that the country would not issue a Eurobond, citing concerns that such a move could expose Nigeria’s volatile dollar securities to higher debt costs.
- However, with significant revenue shortfalls largely driven by low crude oil output, the need for a Eurobond is becoming increasingly critical to raise capital and address budget deficits.
- Meanwhile, the International Monetary Fund (IMF) has expressed concerns about Nigeria’s strategy to issue dollar-denominated bonds.
- The Fund warned that such measures could intensify pressure on the naira and increase the costs associated with naira securities.
- Additionally, the IMF highlighted that the federal government’s plan to introduce domestic foreign exchange securities—aimed at improving dollar liquidity in the official market—could lead to market fragmentation.
