Nigeria may shun issuance of new debt through Eurobond this year and focus more on seeking accommodation from multilateral institutions for concessionary facilities as the biggest economy in Africa seeks to cut back on interest rate payment on debt.
The West African country's Eurobonds have emerged the best performing in emerging markets this year, however, rising yield in the International Capital Market (ICM) my push Nigeria to prioritise borrowing from the World Bank and African Development Bank and other multilateral institutions willing to offer the country helping hands.
According to the head of the Debt Mangement Office (DMO), Patience Oniha Nigeria's major priority now is to reduce debt-service costs.
“If you were to ask me if we’re going to issue Eurobonds this year, I’d say we’ll explore all the options.
“Our preferred option is to explore concessional sources. One of our major objectives is to reduce debt-service costs,” Oniha said in an interview with Bloomberg in Abuja.
The 2019 budget estimated presented to the parliament by President Mohammadu Buhari in December is yet to be approved by the National Assembly.
The budget envisaged the government will issue around 1.65 trillion naira ($4.6 billion) of new debt, half of which would be in foreign currency.
Africa’s biggest oil producer has mostly used the Eurobond market for its external funding in recent years, rather than concessional lenders.
Since 2015 when Buhari ascend leadership of the country, Nigeria has issued about $10.2 billion in Eurobond, $5.4 billion last year and $4.8 billion in 2017, making it Africa’s most prolific issuer in that period after Egypt.
Bank of America said in a research note this month that Nigeria would probably print another $3 billion of securities in the second half of 2019.
Its Eurobonds have returned 14.4 percent since the end of 2018, second only to Kenya among sovereigns in emerging markets, according to Bloomberg indexes.
African Eurobonds have been in heavy demand this year as the U.S. Federal Reserve’s cautious approach to raising interest rates spurs investors to buy higher-risk assets. Ghana and Benin sold $3.6 billion of bonds between them on Tuesday.
While Nigeria’s ratio of debt-to-gross-domestic-product is low relative to other governments at about 25 percent, its small tax base means interest costs as a proportion of revenue are high.
Its Eurobonds have returned 14.4 percent since the end of 2018, second only to Kenya among sovereigns in emerging markets, according to Bloomberg indexes.
African Eurobonds have been in heavy demand this year as the U.S. Federal Reserve’s cautious approach to raising interest rates spurs investors to buy higher-risk assets. Ghana and Benin sold $3.6 billion of bonds between them on Tuesday.
While Nigeria’s ratio of debt-to-gross-domestic-product is low relative to other governments at about 25 percent, its small tax base means interest costs as a proportion of revenue are high.
The federal government’s interest payments-to-revenue more than doubled to 60 percent last year from 27 percent in 2014, according to the International Monetary Fund (IMF).
The figure is on course to rise to 82 percent by 2022, which the Washington-based lender says is “unsustainable.”
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