The Debt Management Office (DMO) has said the Eurobond is not the major source of Nigerian government’s debt funding.
The DMO made this revelation while trying to make clear a statement issued by a member of the Monetary Policy Committee of the Central Bank of Nigeria (CBN) saying that the excessive venture into the debt market for Eurobonds could lead the country into a debt crisis in the near future.
Fearing the negative impact such a statement could have on the mindset of investors, both domestic and foreign, including affecting the chances of achieving economic balance, especially with our Eurobond nearing junk status, the agency wanted to provide clarity about the country’s sources of debt funding, the purposes behind all these loans, and our revenue challenges.
“Statement issued by a member of the MPC may have been made without due consideration of the government’s borrowing needs as captured in the Annual Budgets, Medium-Term Expenditure Framework, as well as the Debt Management Strategy,” DMO’s statement read.
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The DMO said that, contrary to popular opinion widely circulated in social media and some conventional media, the federal government has always been focused on finding cheaper sources of funding both in the domestic and external market.
Accordingly, the DMO wanted to state clearly that the country’s major source of external debt was from lower interest rate issuing agencies.
“Successive Debt Management Strategies have often indicated that the Federal Government of Nigeria’s (FGN) preferred source of external borrowing is concessional sources rather than commercial sources such as Eurobonds,” the DMO’s statement issued Wednesday evening read.
“While loans from concessional sources such as the International Development Association (an arm of the World Bank) are relatively cheaper, as stated above, they are limited in amount. In addition, they are not available for financing infrastructure and other capital projects. Thus, Nigeria accesses concessional and semi-concessional loans as may be available, while issuing Eurobonds to part finance the annual budgets and the infrastructure projects contained therein. ”
One of its re-organized objectives under the Debt Management Strategy 2020-2023 of the current executive board of the DMO under the able leadership of its Director General, Patience Oniha, is “Maximizing funds available to Nigeria from multilateral and bilateral sources in order to access cheaper and long tenored funds, whilst taking cognizance of the limited funding envelopes available to Nigeria due to Nigeria’s classification as a lower-middle-income country”.
On the benefits of the Eurobond, DMO said that the Eurobond “has helped increase the level of external reserves and opened up opportunities for the private sector to issue Eurobonds since January 2011, when the debut sovereign Eurobond was issued by the DMO on behalf of the FGN. Many Nigerian banks, including United Bank for Africa, Access, Zenith, and Fidelity, have issued Eurobonds to raise capital”.
On the issue of Eurobonds likely leading to debt distress, the DMO reiterates the need to generate more revenues significantly beyond their current levels.
The agency made reference to the World Bank data that compared a number of advanced and developing countries that have higher public debt to GDP ratios than Nigeria, with those possessing a much lower revenue to GDP ratio.
The country is advised to not only blockage leakages in the revenue system but diversify away from oil. “The World Bank’s Economic Outlook for 2020 showed that in 2020, Nigeria’s Revenue to GDP Ratio was 6.3% placing it at number 194 out of 196 countries.”
