THE Federal Government’s planned issuance of dollar bond is expected to shore up Nigeria’s foreign reserve(FX) and stabilise the foreign exchange market, industry analysts and economists have said.
Nigeria’s foreign exchange reserve is currently above $33 billion, but there are high hopes that the dollar bond issuance could lead to its appreciation with diaspora and domiciliary accounts on target.
Further findings by The ICIR also revealed that Nigeria’s foreign exchange (FX) reserve has experienced a sharp decline of about $1.02 billion within 18 days, as the Central Bank of Nigeria (CBN) continues its aggressive defence of the naira (naira subsidy).
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As of April 4, 2024, the FX reserves stood at $33.43 billion, down from $34.45 billion on March 18, 2024, according to the latest data from the CBN.
Nigeria is currently subsidising the dollar rates to tame its wild surge against the naira which is created lots of currency problems for the economy.
President Bola Tinubu-led administration has made fuel and of recent electricity subsidy removal a key component of its administration. This has come with a price as inflation surges to 31.7 per cent.
Industry analysts say, the subsidy comes at the expense of Nigeria’s foreign reserves, which guarantees such subsidy, amid weak exports and capital importation by states.
“It is a sovereign financial instruments. It will inspire a lot of confidence. A dollar bond issuance is another way of raising our foreign exchange inflows and it’s even better than the hot money from the equity markets because it’s tenured and not so vulnerable. You can take a bond for a year and they’re tenured,” former Director-General of the Lagos Chamber of Commerce and Industry (LCCI) and and Economist, Muda Yusuf told The ICIR.
Commenting further on the dollar bond issuance, an Economist and the Vice President of Binary Stream Limited, Ifeoma Abidoye, said the dollar issuance will stabilise the exchange rate since it has a sovereign guarantee and risk free from the Nigerian government.
“It is a good toast for investors and would create new asset class for Nigeria’s local and foreign investors,”Ifeoma said.
Already, the federal government has confirmed it has plans to start issuing domestic foreign currency-denominated bonds from the second quarter (Q2) of 2024.
Reuters reports quoted Nigeria’s minister of finance and coordinating minister of the economy, Wale Edun as having confirmed this development during a meeting with business leaders in Lagos.
Edun said in October last year, President Bola Tinubu had signed executive orders to allow domestic issuance of instruments in foreign currency and also allow all cash outside the banking system to be brought into the banks.
He said the federal government would seek to sell forex bonds to Nigerians at home and abroad who, “because of lack of faith in the currency, have decided to try to hold and save in dollars”.
“All the funds in the diaspora, we are targeting them. There are all these funds that you have brought into your (local foreign currency) accounts, we are targeting them,” the minister said.
Edun also said the government had not “issued the bonds earlier because it sought to first build confidence in its fiscal policy and gain the trust of citizens who are sceptical of government policies”.
“When they say what keeps you awake at night, I will say paying the debt service (cost),” said Edun.
‘I think for me, it’s better than borrowing in foreign currency.
Yusuf also told The ICIR that the dollar bond issuance is better than the government borrowing and also better than the stock market’s hot money which is susceptible to volatility.
“I’m fully in support of the dollar issuance and its better than borrowing and servicing debt,”he added.
On January 1, President Bola Tinubu signed the N28.7 trillion budget for the 2024 fiscal year, with a deficit of N9.8 trillion — which will be financed by borrowings from local and international investors and multilateral lenders.
On March 13, a report showed that Nigeria hired investment banks including Citibank NA, JPMorgan Chase & Co., and Goldman Sachs, to seek advice on its first eurobond issue since 2022.
However, two days later, the Debt Management Office (DMO) said it had not received approval for the appointment of transaction advisers and eurobond issuance.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.