The CSL Stockbrokers Limited in its analysis of the prospect of inflow of funds said that these external fundings are worth $3.5 billion and will raise the external reserves to $43 billion.
As of Wednesday, data from the Central Bank of Nigeria (CBN) showed that the nation’s external reserves was $33.539 billion, an increase from $33.1 billion in July.
The Debt Management Office (DMO) during the week announced that the government has appointed eight transaction advisers for the issuance of Eurobonds in the international capital market.
The Eurobonds to be issued will be used to raise funds to bridge the N2.34 trillion (about USD6.2 billion) deficit in the 2021 budget.
Also, Nigerian lawmakers had approved a $6.18 billion foreign currency raise for Federal Government as part of the budget 2021 financing requirement amidst a shortfall in revenue against total expenditure for the year.
Also during the week, the Board of Governors of the International Monetary Fund (IMF) approved a general allocation of Special Drawing Rights (SDRs) equivalent to $650 billion for its members.
The fund, which will be shared among Nigeria and other IMF member countries, will enable beneficiaries boost liquidity and cushion the impact of the coronavirus crisis.
“In our view, this signals a bright prospect from both the fiscal and external positions”, CSL Stockbrokers Limited said in a note on Friday.
“The Eurobond inflow, together with the Special Drawing Right (SDR) of US$3.4 billion allocations from IMF should support FX accretion to about US$43 billion and support CBN’s efforts at managing FX liquidity”, CSL noted.
Analysts at the firm said the government could issue around US$6.2 billion, in line with its 2021 external borrowing plans.
“They said, “We believe the bond will be well subscribed, supported by elevated global aggregate negative-yielding debt market value, which is estimated at $14.5 trillion, elevated global liquidity, as most global central bankers are either retaining interest rates or remaining dovish.
CSL analysts said the Eurobonds issued in Africa this year have had a cumulative oversubscription of 2 times, indicating that offshore interest remains high, saying Nigeria will probably not be an exception.
According to them, moderate risk to debt distress is expected to further support positive sentiments from investors.
Currently, with Nigeria’s debt to GDP of 40 percent, analysts believe that Nigeria’s total debt to GDP remains lower than most Sub-Saharan Africa peers like Ghana whose Debt to GDP stands and Kenya at 66.5 percent.
CSL analysts said, “The increased liquidity will also provide relief for the balance of payment and fiscal accounts.
“Our base case expectation is for the current account deficit and fiscal deficit to settle at 1.2 and 5% of GDP, respectively. In addition, we are of the view that the parallel market premium is poised to narrow”, CSL added.
CSL said Eurobond coupon payments and amortization will probably intensify from 2025 to 2030, with FG expected to pay an average of $1.2 billion annually.
As such, analysts posited that high foreign debt servicing in the stated periods portends a downside to both fiscal position and forex stability.
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