Eurobond fails to lift reserves as more borrowing underway

The $1.25bn Eurobond Nigeria issued in March this year failed to shore up the country’s external reserves, which dropped by 2.15 percent year-to-date, even as the federal government plans more external borrowing, BusinessDay findings show.

External reserves dropped to $39.64 billion on April 27, 2022 from $40.15 billion on January 4, 2022, according to data from the Central Bank of Nigeria (CBN).

Lower oil production despite high crude oil prices led to limited foreign currency inflows needed to boost the reserves.

Read also: Nigeria’s new Eurobond to push external reserves to $40bn – FBNQuest

Rising import bill continued to exert pressure on external reserves and this is expected to continue into the year, said FSDH Research.

Foreign exchange reserves, according to the CBN, are assets held on reserve by a monetary authority in foreign currencies. These reserves are used to back liabilities and influence monetary policy. They include foreign banknotes, deposits, bonds, treasury bills and other foreign government securities.

Nigeria is considering a bond sale targeted at its citizens overseas to raise funds to help Africa’s biggest economy narrow its budget deficit, according to a Bloomberg report.

Patience Oniha, director-general of the Debt Management Office, said the Federal Government might sell the debt after it repays $300 million of diaspora bonds maturing in June.

“We are doing both an analysis of a recent research report on diaspora remittances and reviewing offshore regulations for changes that may be supportive of offering products to retail investors,” Oniha was quoted to have said in a text message on Thursday.

In March 2022, Nigeria issued $1.25bn Eurobond, which was expected to boost its buffers but the reverse was the case due to low oil production.

Nigeria’s gross official reserves declined by $317 million (0.8 percent) month/month to $39.5 billion in March 2022, according to a report by FBNQuest, an investment banking and asset management business of FBN Holdings Plc.

The drop was the fifth in a row as the reserves have been depleting by roughly $451m on average on a monthly basis since November 2021. The gross reserves are calculated on a 30-day moving average basis.

At its last meeting in March 2022, the Monetary Policy Committee noted the decrease in the level of gross external reserves to $39.44 billion as of March 17 from $40.21 billion on January 25, indicating a decrease of 1.95 per cent during the review period.

“Although an expected boost to the buffer is due from Nigeria’s $1.25 billion Eurobond issue in March 2022, we expect this to be properly reflected in the reserves in coming days,” analysts at FBNQuest had said.

The external reserves rose to $39.811 billion as of April 21, 2022 from $39.537 billion in April 1, 2022, but declined to $39.64 billion as of April 27, latest data from the CBN showed.

Nigeria’s external reserves is estimated to grow to about $40 billion by the end of the year, following the latest Eurobond issuance of $1.25 billion in March 2022, according to a report by the FBNQuest.

Nigeria’s need for borrowing has increased following additional spending to help the economy recover from the impact of the COVID-19 pandemic and Russia’s war on Ukraine. The government expects this year’s deficit will widen by an extra N965 billion ($2.3 billion) to N7.35 trillion naira, amounting to about 4 percent of gross domestic product, according to Bloomberg.

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