In a bid to address currency concerns and bolster its fiscal strategy, the federal government of Nigeria has unveiled plans to commence the issuance of domestic bonds denominated in foreign currency, slated to begin in the second quarter of this year.
Minister of Finance, Wale Edun, disclosed this strategic move during a meeting with business executives held in Lagos on Wednesday, according to Reuters.
Addressing the gathering, Edun shed light on the government’s intention to introduce foreign exchange bonds, targeting both local and diaspora investors.
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He noted the rationale behind this initiative, stating, “Because of lack of faith in the currency, [people] have decided to try to hold and save in dollars.”
This sentiment is believed to underscore the prevailing skepticism towards the national currency and the preference for more stable foreign denominations among investors.
Highlighting the scope of the endeavor, Edun remarked, “All the funds in the diaspora, we are targeting them. There are all these funds that you have brought into your (local foreign currency) accounts, we are targeting them.”
This concerted effort aims to tap into existing resources, particularly the substantial funds domiciled in foreign currency accounts, to bolster the country’s financial reserves and stimulate economic growth.
The Minister acknowledged the delay in implementing this strategy, attributing it to the government’s commitment to instilling confidence in its fiscal policies and gaining the trust of citizens wary of official directives. He stressed the importance of fostering a conducive environment for investment and financial stability, acknowledging the prevailing concerns among stakeholders.
Moreover, Edun expressed concerns over the nation’s escalating debt service burden, admitting that it weighs heavily on the government’s fiscal agenda. He candidly admitted, “When they say what keeps you awake at night, I will say paying the debt service (cost).”
This acknowledgment underpins the gravity of the fiscal challenges confronting the administration amidst efforts to navigate economic uncertainties and sustain growth.
The backdrop of economic challenges
The government’s move to issue domestic bonds denominated in foreign currency reflects its proactive approach to addressing economic challenges and shoring up currency stability. Since assuming office, the administration of President Bola Tinubu has pursued various strategies to raise foreign exchange reserves, aiming to stabilize the naira and finance its ambitious budgetary allocations.
Notably, Nigeria faces a significant budget deficit of N9.18 trillion for the fiscal year 2024, marking a decrease from the previous year’s figure of over N13 trillion. Against this backdrop, the government seeks innovative financial instruments to bridge the deficit and ensure fiscal sustainability.
In October of the preceding year, Edun disclosed executive orders signed by Tinubu, to facilitate the domestic release of financial instruments denominated in foreign currency. This regulatory measure aims to mobilize cash held outside the formal financial system and channel it into productive investments, thereby stimulating economic activity.
Earlier announcements in January signaled the government’s intention to tap into domestic dollar savings held by Nigerians, estimated at around $30 billion in domiciliary accounts. The move seeks to unlock liquidity in the foreign exchange market and bolster the value of the naira, amidst ongoing efforts to shore up investor confidence and stimulate economic recovery.
To achieve this aim, the federal government engaged with investment banks such as J.P. Morgan, Citi Bank, Chapel Hill Denham, and Standard Chartered Bank, underlying its commitment to leveraging international expertise and financial networks in executing its fiscal strategies. The proposed issuance of Eurobonds, facilitated by these consultancy arrangements, represents a significant milestone in the government’s efforts to access global capital markets and diversify its funding sources.
However, the Debt Management Office (DMO) has clarified that the official enlistment of advisory firms for the Eurobonds issuance process necessitates approval from the Federal Executive Council (FEC) and the National Assembly.
Financial experts have hailed the move, with some describing it as a long-overdue strategy to tackle Nigeria’s prevailing economic challenges and currency uncertainties.
They said tapping into domestic and diaspora investor funds will help the government boost financial reserves, stimulate economic growth, and enhance currency stability.