The Debt Management Office (DMO) has defended the federal government’s recent interest in Eurobonds, saying they’re for financing budget deficits and capital projects.
This was contained in a statement by the agency on Wednesday.
It said those criticising the government’s approach failed to consider its borrowing needs as captured in the annual budgets, medium-term expenditure framework, as well as debt management strategy.
Continuing, the DMO explained that the borrowing needs were derived from the annual budgets while the borrowing mix was based on the subsisting debt management strategy.
“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 statement reads.
The agency clarified that one of the objectives of the Debt Management Strategy 2020 – 2023 is ‘maximising funds available to Nigeria from multilateral and bilateral sources in order to access cheaper and long-tenured funds, whilst taking cognizance of the limited funding envelopes available to Nigeria, due to Nigeria’s classification as lower-middle-income country.
“Given the size of new borrowings in the annual budgets over the years, it would not have been proper for the FGN to raise all the funds from the domestic market as this would result in the government crowding out the private sector and raising borrowing rates. Consequently, some part of the required funding has to be raised externally.
“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.”
It further pointed out that 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.
On fears that eurobonds would likely lead to debt distress, the DMO said the country needs to generate significantly more revenue beyond current levels, and cited the World Bank, saying while other developing and advanced countries have higher debt as a proportion of gross domestic product (GDP) than Nigeria, the country’s revenue-to-GDP ratio is much lower.
“The World Bank’s Economic Outlook for 2020 showed that in 2020, Nigeria’s revenue to GDP ratio was 6.3 percent placing it at number 194 out of 196 countries,” the statement adds.
The DMO also explained that while the government continued ongoing efforts to diversify and grow revenues, the public should take into cognizance other benefits of eurobonds.
In March this year, the federal government raised a $1.25 billion seven-year eurobond in the international capital market (ICM) and one month later, Zainab Ahmed, minister of finance, said the federal government would issue another $950 million bond but later didn’t go ahead with the plan.
