Nigeria to Launch Eurobond in October, Says Finance Minister

The Nigerian government will launch about half of the planned $6.18 billion Eurobond capital raise in October 2021, Zainab Ahmed, the finance minister said on Monday.

The need to borrow becomes necessary due to fiscal slippage following covid-19 effects on the economy, though Nigeria’s gross domestic product, GDP, expands more than 5% in the second half of 2021.

However, widening budget deficit and lower accretion from oil receipts have mounted pressure on government finance. In the first five months, government revenue expectation fell short by 45%, though it overspent recurring expenditure.

Speaking about the Eurobond issuance, Ahmed said the Nigerian government would hold roadshows for the dollar-denominated issuance, which aims to raise roughly $3 billion, in Lagos and New York.

The government is also targeting raising the same amount via multilateral and bilateral borrowing to fund its 2021 budget deficit.

“We have an approval in the 2021 budget to fund the budget deficit 50% locally and 50% externally. We are planning to do about half of that in Eurobonds and the other half through other windows such as multilateral and bilateral sources.”, Ahmed stated.

The budget deficit is projected to be N5.62 trillion in 2021 up from N5.60 trillion in 2020. This represents 3.05% of estimated GDP, which is marginally above the threshold of 3% stipulated in the Fiscal Responsibility Act (FRA), 2007.

“We consider this level of deficit necessary to sustain our recovery from recession, as well as ensure that critical ongoing infrastructure projects are completed.

“The deficit will be mainly financed by new foreign and domestic borrowings of N4.89 trillion, N90.73 billion from Privatization Proceeds, and N638.32 billion drawdowns on the existing project tied loan”, Budget office said in medium term expenditure framework.

Parliament in July approved external borrowing of roughly $6.2 billion.

Nigeria, Africa’s largest economy, is struggling to boost growth after exiting its second recession since 2016 in the fourth quarter of last year. Its incoming statistician-general has said the nation is targeting gross domestic product growth above 5% for 2021.

In 2020, gross oil and gas revenue was projected at N3.03 trillion but the actual receipt was N4.40 trillion, representing 45.2% performance over the budget.

Nigeria’s budget office said in a report that after deductions (including 13% derivation), net oil and gas revenue inflows to the Federation Account was N3.02 trillion, a N914.87 billion (or 43.6%) more than the target.

The remarkable performance in oil and gas revenue is attributable to the average market price of oil which was 54% higher than the budget oil price benchmark.

In addition, oil and gas revenues were monetized at a higher rate than the budget benchmark – an outcome of an agreement between the fiscal and monetary authorities, which required dollar earnings to be exchanged at 2% less the Import & Export Window rate.

Nigeria also generated N3.86 trillion as gross non-oil taxes against N5.15 trillion projected, representing a shortfall of 24.9%. Of this, the budget office said Corporate Tax and VAT collections were N1.48 trillion and N1.47 trillion, representing 82.2% and 67.3% collection performance respectively. Customs collection was N909.46 billion, which is 78.6% of the target.

However, oil volume production has been under pressure in 2021. In the first quarter of 2021, crude oil production accounted for 9.25% of Nigeria’s real GDP.

Average fiscalised crude oil and condensate production increased sharply from 1.96 million barrels per day (mbpd) in December 2019 to 2.07 mbpd in January 2020 and declined afterwards to 1.42 mbpd in December 2020 with 1.22 mbpd crude only.

The budget office said in the medium term expenditure framework that actual daily crude oil production has been below budget projections since 2013.

Nigeria to Launch Eurobond in October, Says Finance Minister