Successful Eurobond auction – The Nation Newspaper
•It is a positive signal but the proceeds should be well managed to deliver value
Going by the outcome of its latest Eurobond auction, the Federal Government, nay the Debt Management Office (DMO), has good reasons to be excited about the growing confidence in the economy. Announcing the outcome of its latest Eurobond offer, the DMO stated that it had raised $2.2bn with its first Eurobond sale since February 2022. Talk of the icing on the cake: its oversubscription at $9.1bn.
“Nigeria is pleased to have attracted a wide range of investors from multiple jurisdictions, including the United Kingdom, North America, Europe, Asia, Middle East and participation from Nigerian investors, which it views as an expression of continued investor confidence in the country’s sound macro-economic policy framework and prudent fiscal and monetary management,” the debt office said in a statement. The proceeds from this Eurobond issuance, it also stated, will be used to finance the 2024 fiscal deficit and support the government’s budgetary needs.
Minister of Finance and Coordinating Minister of the Economy Olawale Edun observed that the development signposts increasing confidence in ongoing efforts of the President Bola Tinubu administration to stabilise the economy. He noted that “The broad range of investor appetite to invest in our Eurobonds is encouraging as we continue to diversify our funding sources and deepen our engagement with the international capital markets.”
Governor of the Central Bank of Nigeria (CBN) Olayemi Cardoso said that the outcome “underscores the growing confidence of investors and the resilience of the Nigeria credit, and evidence of our improved liquidity position and continued access to international markets to support the financing needs of the government.”
Considering that the economy is undergoing a reset of sorts, the success of the Eurobond offer is a positive signal. More than a mere sign that the global investment community is actually paying attention to what is happening in the Nigerian economy, the nation’s foreign reserves, which have undergone a dramatic turnaround in recent months, will certainly be impacted directly. And this is not forgetting the overall goal, which is to enable the government to fast-track the process of bringing those infrastructural deliverables sorely needed to catalyse the economy to fruition. The point about governments needing to borrow to pay for infrastructure to address growth and poverty goals in the long term cannot be overstated.
However, despite the positive signals, the situation, to put it mildly, is fraught with inherent risks. One of them is the cost of the issue itself. For instance, some have raised issues with the price of the 6.5-year issue at 9.625 percent, and the 10-year variant priced at 10.375 percent.
Second is ensuring proper utilisation of the proceeds, given that the performances of some African countries have not been stellar in this regard. A frequently cited example is the Kenyan government, which in June 2014 raised US $2.21bn to fund different infrastructural projects only for $750m of the proceeds to be used to pay civil servants and also run day- to-day activities of various ministries, while another $600m was used to pay a syndicated loan. Another story is Zambia whose government used money raised from a Eurobond on a range of activities that could not generate income and help in repaying the loans. And then Ghana, the first country in Sub-Saharan Africa to issue a Eurobond; it used the money to increase salaries for its civil servants in the hope that it would raise enough revenue from cocoa, gold and oil exports to repay the debt.
At this time when Nigeria’s rising debt stock has attracted greater scrutiny, the Nigerian government owes the citizens the duty of ensuring that the proceeds of the bonds not only deliver real value to the economy but that its management is as transparent as can be.
