The Federal Government has announced plans to issue a $1.7 billion Eurobond as part of efforts to bridge the N9.1 trillion ($5.2 billion) deficit in the 2024 budget, estimated at N28.7 trillion (approximately $17 billion).
The issuance plan comes shortly after President Bola Tinubu reportedly requested a $5 billion trade finance loan from Saudi Arabia’s Crown Prince Mohammed bin Salman to settle Nigeria’s balance of payment obligations.
The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, disclosed this development on Thursday at the State House in Abuja. He also announced plans to raise an additional $500 million through Islamic Sukuk bonds, aimed at diversifying Nigeria’s international debt portfolio and generating the much-needed capital to support the budget.
The Eurobond issuance seeks to reintroduce Nigeria to the international debt capital markets and attract foreign capital. However, concerns about Nigeria’s rising external debt profile remain. External debt currently stands at $42.9 billion, representing approximately 39% of the country’s total debt stock. In naira terms, the domestic debt has ballooned to N66.9 trillion, constituting 60% of total public debt.
The planned Eurobond and Sukuk bonds are part of the Nigerian 2024 Appropriation Act, which has been amended to reflect the government’s borrowing strategy. Edun noted that the borrowing plan would be submitted to the National Assembly for approval “as soon as possible.”
Earlier this year, Nigeria raised $900 million through its first domestic sale of dollar-denominated bonds. At the time, Edun ruled out issuing Eurobonds, citing the high cost of floating rate securities and the risks associated with Nigeria’s volatile dollar securities market.
However, a worsening fiscal environment, exacerbated by lower-than-expected crude oil revenues and subsidy removal challenges, has made external borrowing increasingly critical. With oil production still below the target of 1.7 million barrels per day, the government is grappling with revenue shortfalls and a devalued naira, further complicating debt servicing.
The International Monetary Fund (IMF) has expressed reservations about Nigeria’s decision to issue dollar-denominated bonds. The IMF warned that such moves could compound pressure on the naira and escalate debt servicing costs, particularly given the devaluation of the local currency.
Additionally, the IMF cautioned that introducing domestic foreign exchange securities to improve dollar liquidity in the official market could lead to market fragmentation, complicating Nigeria’s already fragile financial system.
Financial analysts have also raised concerns about the practicality of issuing floating-rate Eurobonds at premium yields. Domestic dollar bonds are already priced at 8.5% to 9.8%, yet the proposed Eurobond is expected to carry a coupon rate above 10%, given current market conditions.
“Wale Edun wants to structure a floating rate Eurobond of $1.7 billion with coupon yields priced at a premium, most likely above 10%, to fund the 2024 budget deficit, which expires in less than two months. Meanwhile, the NNPC is using Nigeria’s crude intervention stock to structure crude oil swaps or vendor financing programs for importing almost $1 billion worth of PMS whose quality cannot be verified,” Kelvin Emmanuel said.
Mounting Economic Pressures
Edun’s announcement arrives amid growing concerns about the transparency of Nigeria’s financial management. The Central Bank of Nigeria (CBN) has yet to publish its annual financial statement as required by law, raising alarms among international investors. This opacity was highlighted during a recent investor forum in New York, where a Deputy Governor of the CBN reportedly struggled to provide clarity on Nigeria’s net external reserves.
However, if successfully implemented, the Eurobond and Sukuk bond issuances could provide Nigeria with the necessary capital to address budgetary gaps and improve infrastructure development. But analyst have noted that the high cost of external borrowing and the risks associated with foreign currency-denominated debt, including exchange rate volatility, could undermine these gains.
With Nigeria’s debt servicing costs already consuming a significant portion of government revenue, the sustainability of this borrowing strategy remains a critical question. Observers argue that without substantial improvements in revenue generation—such as diversifying the economy beyond oil—Nigeria risks falling deeper into a debt trap.
