Part one of many…?
The first tranche of the Nigerian Domestic Bond Program is up
The Nigerian government recently announced a 2 billion US dollar domestic dollar bond programme. the first batch of the bond (500 million dollars) opened on the 19th of August 2024 and closes on the 30th of August 2024. The bond is offering a 9.75% interest rate to be paid semi-annually and has a minimum investment price of 10,000 US dollars. The bond can be bought by Nigerians, non-Nigerians resident in Nigeria, Nigerians in the diaspora, and Qualified Institutional Investors.
The proceeds from the bonds will be used to fund projects approved by the President as recommended by the Minister of Finance and Coordinating Minister of the Economy.
So What?
There are a lot of details involved in the issuance. They can be found here and here. Our focus is on how the issuance fits into the larger Central Bank (CBN) currency stabilization agenda.
Based on the latest estimates by the CBN, this is about 30 billion US Dollars sitting in domiciliary across the country. Combined with the over 20 billion US Dollars in remittances coming into Nigeria you begin to see what the CBN is trying to do. They are trying to finance the government with dollars already resident in the country and improve dollar liquidity in the economy.
The CBN has already released protocols to boost international money transfer transparency in Nigeria so it can have visibility into remittance inflows. The domestic bonds offering aims to give domestic dollar holders a reason to give their dollars to the government especially given that the interest is tax free. It would also have the benefit of attracting inflows from diaspora and foreign investors because the 9.75% is significantly higher than the current United States interest rate on bonds (5.5%).
It is commendable that the structure of the bond offering is going to hopefully transfer the money into productive assets (infrastructure) and not just a financial asset class to mop up dollars in the system.
From a governance perspective, the success of the program would be based on the ability of the Federal Government to use the proceeds to drive infrastructure development and stimulate critical sectors like manufacturing.