Only a few weeks until the issue of its Eurobond, the government of Nigeria has suspended the move to raise $950 million in external debt. According to the country’s finance minister Zainab Ahmed, the postponement is a result of current unfavourable market conditions. At just under a billion dollars, the planned bond sale would account for the balance of the $6.1 billion overseas borrowing plan for 2021, after having raised a tranche of $1.2 billion in March. Meanwhile, according to the Central Bank of Nigeria data, the country’s foreign reserves fell to $38.843 billion at the end of May 2022 from $40.251 billion at the end of December 2021.
Conversely, South Africa saw its own foreign reserves increase to $60.28 billion from $57.589 billion in the same time frame. The low reserves could be an indication of Nigeria’s declining revenue and its unwillingness to take on more debt by suspending the planned Eurobond sale lends credence to that. For this episode of Business Edge, Lekan Onabanjo and Gospel Obele, Chief Economist at Streetnomics Limited, take a look at the two parallel issues – i.e. the suspension of the bond and the dipping of foreign reserves – with a view to understanding what one has to do with the other and to find out likely solutions.
Nigeria does indeed have a fiscal issue: debt has gone up, revenue has declined and the International Monetary Fund has warned that the country may soon find itself spending all of its revenue on debt servicing. Yet, in a situation where revenue is low, there appears to be no other option than to borrow. “These are monies that Nigeria needs to deploy to fund core capital projects,” Obele says. At the same time, the fear of a looming global recession being felt by economists and analysts across the world means that Nigeria has a short window in which to implement effective measures to guard against it.
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