Recently, the Debt Management Office (DMO) indicated its plan to sell additional $2.5 billion Eurobond in the first quarter of the year to complete the Eurobond debt program that was re-initiated in 2017. 
This will increase the FGN’s Eurobond portfolio from $6.3 billion to $8.8bn amid the plan to refinance a portion of expensive local debt with cheaper foreign borrowing.
Much in line with our expectation, the DMO is also looking to begin talks with JP Morgan (JPM) about re-inclusion of Nigeria in its Emerging Market Bond index.
As observed in 2017, the $2.5 billion Eurobond inflow will further boost Nigeria’s external reserves position and improve currency market liquidity amid rising oil prices, buttressing the argument for JPM’s re-inclusion.
Additionally, it will slightly moderate debt servicing and support capital spending.
However, debt sustainability will remain a concern despite the lower Debt-to-GDP ratio (the major argument for increasing debt stock).
This is mainly because Nigeria’s sharp rising debt service/revenue ratio currently ranks very high (projected at 30.5 percent in 2018 from 32.7 percent in 2017) compared to peers.
According to the 2018 budget, proposed debt service (2.0 trillion) remains high, almost crowding out total CAPEX spend (2.5 trillion).
Hence, there is a need to critically examine current debt position to ensure the long-term gains of CAPEX spending is guaranteed.
(C) United Capital
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