Nigeria’s inaugural domestic dollar-denominated bond has significantly contributed to the nation’s debt stock, adding a substantial N1.47 trillion. This bond, as per the latest domestic debt report from the Debt Management Office (DMO), now accounts for 2.12% of Nigeria’s total domestic debt, which stood at N69.22 trillion as of September 30, 2024. The issuance marks a pivotal moment in the federal government’s strategy to diversify its funding sources and attract foreign investment.
The domestic dollar bond offers investors a distinctive opportunity to participate in Nigeria’s economy while mitigating the risks associated with the volatility of the naira. Unlike naira-denominated instruments, this bond allows investors to hedge against currency fluctuations, providing a more stable investment option in Nigeria’s growing economy.
As the Nigerian government navigates its fiscal challenges, the DMO has also announced plans to raise an additional N450 billion through a bond auction scheduled for January 2025. This auction represents a notable increase in Nigeria’s borrowing targets compared to previous years, as the country seeks to address its fiscal deficit and meet financial obligations.
The January 2025 bond auction will feature a blend of reopened and new bond issuances. One of the key bonds in the offering is a five-year bond with a 19.30% coupon rate, initially issued in April 2029. The government aims to raise N100 billion from the reopening of this bond, reinforcing its commitment to prudent debt management and long-term economic stability.
In a mixed performance for domestic debt, Nigeria’s total debt in dollar terms decreased by 5.34% from $48.45 billion in June to $45.87 billion in September. However, in naira terms, domestic debt rose by 3.10%, from N71.22 trillion to N73.43 trillion. Federal Government bonds remain the largest component of domestic debt, increasing by 4.47% from N52.32 trillion in June to N54.65 trillion in September, representing 78.95% of the total domestic debt stock.
Meanwhile, Treasury Bills, the second-largest component, saw a slight reduction of 0.66%, falling from N11.81 trillion to N11.73 trillion as part of the government’s strategy to reduce short-term debt and minimize rollover risks. Promissory notes, used for settling government obligations, grew by 5.80%, reaching N1.77 trillion from N1.67 trillion in June.
Federal Government Sukuk, designed for infrastructure funding, saw a decline of 9.14%, dropping from N1.09 trillion to N992.56 billion. In contrast, savings bonds experienced a notable increase of 16.11%, growing from N55.22 billion to N64.09 billion, signaling strong retail investor interest.
While green bonds, which have a minimal contribution to the overall debt stock, remained unchanged at N15 billion, they represent a small but growing aspect of Nigeria’s evolving debt landscape focused on sustainable funding.
As the federal government continues its capital raising efforts, these moves demonstrate Nigeria’s ongoing commitment to strengthening its financial position, diversifying funding sources, and ensuring long-term economic stability.