Mixed reactions as FG plans to boost external reserves with $500m FGN Bond

The Federal Government has concluded arrangement to float the first ever Domestic FGN $500 million Bond in the country to help boost external reserves and provide the infrastructure needed to enhance and stabilise the economy.

This is coming as mixed reactions by experts and analysts trailed the floatation of the Bond.

The Finance Minister and Coordinating Minister of the economy, Wale Edun, who disclosed this during the Roadshow for the Domestic FGN US Dollar Bond in Lagos yesterday, said: “The Bond, all things being equal, would open next Monday and it is expected that Nigerians aboard should use the opportunity to invest in this country to support the government in providing the needed infrastructure for the growth and development of the economy.

“It is a major feat to Executive Order by President Tinubu to present this opportunity to now launch the issue. We examine the data, we look at the evidence, we can say that the economy is showing signs of recovery.

‘’Output is good, the exchange rate stabilizing. The government revenues and government expenditure have been totally revamped and robust technological procedures have been put in place, in addition to ensure that on the expenditure side, government revenue expenditure is carried out in a way that engenders public trust, visibility, transparency, accountability.

‘’It’s not a question of saying giving up, we keep trying and trying and ensure that procedure is perfected as much as possible, and the right kind of outcomes are achieved as the hallmark of the government under President Tinubu.

“Likewise, the current account balance is positive and growing in more dollars going out, and this is reflected in the rise of the reserves, about $4 billion I believe, since the beginning of the increase in external reserves.

‘’So as I was pointing out, we are turning the corner under the measures being taken so far, agriculture in the first quarter was negative. So when you look at June, that is high, and this has made uncomfortably high cost, transport cost and so forth.

‘’We believe inflation has peaked; that inflation is coming down and will continue. And I think inflation, first of all, started slowing, and then we expect that it will continue downward trajectory. In order to deal with the fact that this type of macroeconomic reform means that the costs are the pain, the difficulties come first before we can now look at the benefits.

‘’So, it was always Mr President’s commitment to assist in that process, to assist in lowering the high cost of living, for individuals, for companies, even the largest sector of the business, the large scale companies.

‘’As a result of that, I’m sure you are aware there have been interventions which give direct payments to individuals, and that process was difficult at first, but with technology and with commitment and determination, it has been speeded up.

‘’Last month, a million people, a million households, received their payments, and so we hope to speed up that scale.

“We’re here today to talk about dollar money, and that’s because it is critical for the exchange rate, and is critical in terms of investment and stabilizing economy to have adequate foreign exchange .

‘’The central bank introduced us to a willing buyer, seller model of the forex, which is proved to be efficient, which is part of the procedure that has brought in additional dollars. As we said earlier, the flow of dollars into the economy from portfolio investors has improved, foreign direct investors, and, of course, from multilateral organizations, which are brought in as a result of Mr. President’s macro economic reforms.

‘’Today, we are playing an important role in this process which is aimed at improving the flow of dollars to the economy, We are already having success from the combination of monetary, fiscal policies, which is proving to bring in foreign portfolio investment, foreign direct investment.

“We all know the more foreign exchange, the higher the level of reserves, the stronger will be the exchange rate that gives a chance for inflation to come down. Of course, you get lower interest rates. You get the ability to borrow, invest, increase the productivity of the economy, grow the economy, create jobs and reduce poverty, and at the end of the day, the overall economic policy of Mr. President to reduce poverty in Nigeria.

‘’So let me just focus a little bit on the issue of external flows. Right now, when we look at the concessional flows from the multilateral organizations, in particular, it is negative. We have to rely on domestic resource mobilization; we have to build our own financial markets; we have to rely on our own cities.

‘’This is exactly what this transaction speaks to, and it is important nationally, but it’s also important regionally, if not continental.’’

In her remarks, the Director General of Debt Management Office, DMO, Ms Patience Oniha, said: “The Domestic FGN 500 million US Dollar Bond is the first series and very attractive to all investors.

The Pension Fund Administrators, PFAs, can invest in the Bond on behalf of their clients. Yes, the rule does not allow them to invest directly in dollar.

‘’They had participated previously in Euro Bond. So those who have foreign accounts clients can encourage their clients to invest in Nigeria.”

Experts\Analysts react

Reacting yesterday, David Adonri, Analyst/Executive Vice Chairman at Highcap Securities Limited, said : “FGN has been mooting the idea of issuing domestic dollar denominated bond as investment outlet for dollars in domiciliary accounts.

‘’I don’t know if this issuance is based on above. FGN can also raise dollars through EURO BONDS, wherein the international investing public can subscribe. Notwithstanding the method adopted, the borrowing will be an external debt obligation because it requires foreign currency to redeem. ‘’Considering the precarious debt situation and dwindling crude oil revenue, further foreign debt by FGN sinks the economy deeper into its current debt trap. However, the compulsion to take new debt may be unavoidable because without new debt, existing obligations may become delinquent and secondly, store of hard currency may dry up.

‘’In the short term, the new debt can rescue the economy but it postpones the evil day when the roof may collapse under the weight of excessive public debt.”

Also commenting, Victor Chiazor, Head of Research & Investment at FSL Securities Limited, said : “The FGN local dollar bond issuance is expected to have a very good outing in terms of the subscription level, given the attractive rate being offered by the government.

‘’However, we need to be careful about the kind of signal this local dollar bond sends to the economy as it may begin to encourage more domestic players to convert their naira holdings into dollars, which further puts pressure on the domestic currency.

‘’For us, we hope this does not become a frequent pattern within the Nigerian economy as it has the tendency to further increase the level of dollarization of the economy.”

Reacting in a similar manner, Clifford Egbomeade, Public Analysts and Investment Expert said : ‘’The Federal Government of Nigeria’s (FGN) planned issuance of a $500 million domestic dollar-denominated bond represents a strategic move to address the country’s foreign exchange needs and diversify its investor base.

‘’With Nigeria’s external reserves standing at $36.62 billion as of August 12, 2024, this bond issuance can help bolster reserves and stabilize the foreign exchange market.

“ The implications of this bond issuance are multifaceted. First, it can improve liquidity in the foreign exchange market, reducing pressure on the naira and supporting economic stability. Second, it will attract new investors to Nigeria’s financial markets, boosting investor confidence and diversify the country’s investor base.

‘’From a macroeconomic perspective, the bond issuance will support economic growth and development by channeling funds into critical sectors. This aligns with the World Bank’s forecast of a 3.3% economic growth in 2024.

‘’Moreover, by reducing reliance on domestic debt, Nigeria can alleviate pressure on the domestic bond market and reduce its vulnerability to domestic market fluctuations.

‘’However, it is essential to consider the potential risks associated with this bond issuance, including market volatility and currency risk.”