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Even though Nigeria has Apparent Liquidity and Spending Problems, it will Likely Still Find Creditors

Nigeria’s economy has been in the spotlight for several reasons in the past few years. And one of the most controversial is its record-high borrowing trend.  According to the Medium-Term Expenditure Framework (MTEF), Nigeria plans to borrow more than $25 billion next year to cover its budget deficit. That’s about 5 per cent of its GDP—higher than the 3 per cent threshold set by the fiscal responsibility act of 2007. But now, it faces the uphill task of plugging this large monetary gap. Eurobonds are a vital ingredient in Nigeria’s debt leverage plan. But as of September 23, the yield on Nigeria’s latest $1.25 billion Eurobond had risen by more than 500 basis points to 13.695 per cent from its March debut of 8.375 per cent. This Eurobond is now trading at a discount of 43.95 per cent, the most since July. This yield hike makes it more difficult for Nigeria to issue a new Eurobond, as the government will have to pay no less than 14 per cent interest on this one. Nigeria doesn’t need Eurobonds to only plug its budget hole. It also wants to supplement its depleting foreign reserve. Nigeria earns most of its foreign exchange through the oil sector. But it recently lost its oil giant status to vandalism and mismanagement. At the same time, foreign exchange inflow from portfolio investors (FPI) has reached historic lows.