Eurobond, SDR Will Boost Nigeria’s Foreign Reserves to $43 Billion
On the Central Bank of Nigeria (CBN) website, external reserves printed at $33.539 billion as of Wednesday, an improvement from $33.1 billion in the past month.
In recent times, key developments in the Nigerian economy sees Nigeria trying to actualise borrowing plans toward 2021 deficit budget financing with foreign currency loans.
Nigerian lawmakers had approved a $6.18 billion foreign currency raise for Federal Government as part of the budget 2021 financing requirement amidst a shortfall in revenue against total expenditure for the year.
At the same time, a global multilateral lender, the International Monetary Fund (IMF) approved $650 billion Special Drawing Rights (SDRs) for members’ countries to drive economic recoveries.
Recall Nigeria’s Debt Management Office (DMO) on Wednesday released a statement that the government has appointed eight transaction advisers from an open competitive bidding process.
“In our view, this signals a bright prospect from both the fiscal and external positions”, CSL Stockbrokers Limited said in a note on Friday.
Analysts at the firm said the government could issue around US$6.2 billion, in line with its 2021 external borrowing plans.
“We believe the bond will be well subscribed, supported by elevated global aggregate negative-yielding debt market value, which is estimated at $14.5 trillion, elevated global liquidity, as most global central bankers are either retaining interest rates or remaining dovish”.
CSL analysts said the Eurobonds issued in Africa this year have had a cumulative oversubscription of 2 times, indicating that offshore interest remains high, and Nigeria will probably not be an exception.
Furthermore, they also noted that moderate risk to debt distress is expected to further support positive sentiments from investors.
Nigeria’s total public is projected to reach 35.5% of gross domestic products (GDP) in 2021 from 35.0% in 2020 following DMO adjustment to provisions in the Fiscal Responsibility Act earlier in the year.
The adjustment was to pave way for the Nigerian government to be able to ramp up loans to finance capital spending for the year.
Currently, with Nigeria’s debt to GDP of 40%, analysts believe that Nigeria’s total debt to GDP remains lower than most Sub-Saharan Africa peers like Ghana whose Debt to GDP stands and Kenya at 66.5%.
“The Eurobond inflow, together with the Special Drawing Right (SDR) of US$3.4 billion allocations from IMF should support FX accretion to about US$43 billion and support CBN’s efforts at managing FX liquidity”, CSL noted.
As such, analysts said they see enough legroom for the CBN to clear the existing foreign portfolio Investors (FPI) FX backlog of about US$2.billion and gradually increase monthly intervention to pre-Covid levels of about US$3.2 billion per month.
“The increased liquidity will also provide relief for the balance of payment and fiscal accounts.
“Our base case expectation is for the current account deficit and fiscal deficit to settle at 1.2 and 5% of GDP, respectively. In addition, we are of the view that the parallel market premium is poised to narrow”, CSL added.
However, analysts noted that this will not narrow to single digits, as importers of items restricted from getting FX from the official sources will still resort to the black market.
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CSL said Eurobond coupon payments and amortization will probably intensify from 2025 to 2030, with FG expected to pay an average of US$1.2 billion annually.
As such, analysts posited that high foreign debt servicing in the stated periods portends a downside to both fiscal position and FX stability.
Eurobond, SDR Will Boost Nigeria’s Foreign Reserves to $43 Billion By Olu Anisere
