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HomeTop NewsCBN monetarist says Eurobonds pose high risk to Nigerian economy

CBN monetarist says Eurobonds pose high risk to Nigerian economy

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By Oludare Mayowa

A Central Bank of Nigeria (CBN) monetarist has expressed concern over Nigeria’s preference for dollar-denominated debt with its attendant high-interest rate and associated exchange rate risk.

In his personal statement at the last Monetary Policy Committee (MPC) meeting in May, Robert Asogwa said Nigeria’s penchant for Eurobond “may likely hurt Nigeria sooner than anticipated.”

Citing an International Monetary Fund (IMF) report, he said Nigeria is one of the countries that may likely move into debt distress, “given the staggering $100 billion public debt stock as of March 31, 2022.”

He frowned at the increasing accumulation of Eurobonds by the federal government at high-interest costs.

“The unexplained government preference of Eurobonds at high-interest costs, with the associated exchange rate risk may likely hurt Nigeria sooner than anticipated,” the member of the rate-setting body said.

He said “the escalating fiscal sector deficits with the attendant rising debt ratios are part of the weak links in the domestic economic environment.

READ ALSO: CBN MPC member seeks aggressive hike in interest rate to curb inflation

“The poor revenue growth in a period of expanding government expenditures has continued to soar the budget deficit levels in the first quarter of 2022, similar to the trend witnessed in 2021.”

Nigeria raised $1.25 billion in Eurobonds, which is due in 2029 at a yield of 8.375 per cent in March. However, the yield on the debt has risen to around 13.57 per cent, depicting the risk associated with the country’s debt.

A report showed that Nigeria’s Eurobond is trading at a discount of 22.5 per cent, given that the price has fallen from 100 cents to 77.5 cents to a dollar.

This implies that an investor who bought the bond when it was issued has lost 22.5 per cent of their money.

The yield performance of the bond has nearly turned the country’s external debt into junk, with most risk averse investors scared to touch the instrument.

As it is now, Nigeria is effectively locked out of the Eurobond market for new issues, which means for the country to issue new debt in the International Capital market, it should be ready to pay junk bond rates.

Nigeria is currently owing about $15.62 billion in Eurobonds as of March 31, 2022, this means when discounted from the present Foreign exchange reserves, the country will be in gross debt crisis.

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