The Eurobond is not a major source of public debt financing – DMO
The Debt Management Office (DMO) has stated that the Eurobond is not the primary source of debt financing for the Nigerian government.
The DMO made the revelation while trying to clarify a statement issued by a member of the Monetary Policy Committee of the Central Bank of Nigeria (CBN) saying that excessive investment in the debt market for Eurobonds could drive the country to a debt crisis in the near future.
Fearing the negative impact that such a statement could have on the mindset of investors, both domestic and foreign, in particular by affecting the chances of achieving economic equilibrium, in particular with our Eurobond close to the shoddy status, the agency wanted to clarify the sources of financing for the country’s debt. , the purposes of all these loans and our revenue challenges.
“The statement issued by a member of the MPC may have been made without due regard to the government’s borrowing needs as reflected in the annual budgets, the medium-term expenditure framework, as well as the debt management strategy. debt,” the DMO statement said.
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The DMO said that contrary to popular opinion widely circulated on social media and some mainstream media, the federal government has always been focused on finding cheaper sources of funding, both domestically and externally.
As a result, the DMO wanted to make it clear that the main source of the country’s external debt came from lower interest rate issuing agencies.
“Successive debt management strategies have often indicated that the preferred source of external borrowing by the Federal Government of Nigeria (FGN) is concessional sources rather than commercial sources such as Eurobonds,” the DMO statement said. released Wednesday evening.
“Although loans from concessional sources such as the International Development Association (a branch of the World Bank) are relatively cheaper, as noted above, they are limited in amount. Moreover, they are not available for financing infrastructure and other investment projects. Thus, Nigeria accesses available concessional and semi-concessional loans, while issuing Eurobonds to partly finance annual budgets and the infrastructure projects within them. ”
One of its revamped objectives under the current DMO Board’s 2020-2023 Debt Management Strategy under the able leadership of its Managing Director, Patience Oniha, is to “maximize funds available for Nigeria from multilateral and bilateral sources to access cheaper and long-term funds, while taking into account the limited funding envelopes available to Nigeria due to Nigeria’s classification as a middle-income country in the lower slice.
Regarding the benefits of the Eurobond, the DMO said that the Eurobond “has helped to increase the level of external reserves and opened up opportunities for the private sector to issue Eurobonds since January 2011, when the first sovereign Eurobond was issued by the DMO on behalf of the FGN Many Nigerian banks, including United Bank for Africa, Access, Zenith and Fidelity, issued Eurobonds to raise capital.”
On the issue of Eurobonds that could lead to over-indebtedness, the DMO reiterates the need to generate more income well beyond their current levels.
The agency referred to World Bank data which compared a number of advanced and developing countries that have higher public debt-to-GDP ratios than Nigeria, with those that possess a much lower income-to-GDP ratio. .
The country is advised not only to block leaks in the tax system, but to diversify away from oil. “The World Bank’s Economic Outlook for 2020 showed that in 2020, Nigeria’s revenue-to-GDP ratio was 6.3%, ranking it 194th out of 196 countries.”