Issuing bonds

The FG plans to begin the issuance of domestic foreign currency-denominated bonds from this quarter, Minister of Finance and Coordinating…

The FG plans to begin the issuance of domestic foreign currency-denominated bonds from this quarter, Minister of Finance and Coordinating Minister of the Economy, Mr Wale Edun, said Thursday. The government move is expected to herald domestic issuance of similar bonds by companies and sub-nationals. The move aligns with the government’s plan to attract more forex inflows to stabilise the naira. Edun told his audience that Abuja 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.”

The decision to introduce these bonds reflects the government’s efforts to attract foreign exchange inflows and stabilise the naira amidst ongoing economic challenges. By offering domestic foreign currency-denominated bonds, the government aims to tap into the funds held by Nigerians at home and abroad who lack faith in the local currency and prefer to save in more stable currencies like the US dollar. This strategy could boost foreign exchange reserves and provide a source of funding for government projects and initiatives. However, there is a contradiction: how does Nigeria, which does not control the supply of any foreign currencies, intend to convince investors to invest in domestic foreign currency-denominated bonds outside of the usual stringent conditions of bond issuance? With Nigeria’s recent behaviour around honouring agreements that it guaranteed concerning foreign currency remittance to the airlines, is there a basis for foreign investors to trust that it will honour its obligations? Nigeria is seeking shortcuts to solving problems that require longer, harder thought-out solutions. And that only leaves the fiscal hole it has dug itself into to deepen. South Africa has a similar programme, and the issuer is at the mercy of the market. However, it’s a welcome strategy to raise FX. The issue remains a supply mechanism to pay back; this includes the FX earning policy. We wouldn’t have had to do this if Nigeria had taken non-oil exports seriously. We need to be discerning, but it’s a good start. Nigeria should have implemented most of our present policies as far back as 2018. Now, our issues remain complex. On the FX side, supply is the main headache, as refusal to have a proper and realistic plan will mean the Nigerian government needs another temporary FX financial engineering plan soon. It is crucial to consider the broader implications of this move. Issuing foreign currency-denominated bonds carries risks, especially in a country like Nigeria, which has a history of currency volatility. If the Naira depreciates significantly against foreign currencies, the government’s debt burden could increase, potentially leading to financial instability.