Nigeria does not need IMF, World Bank loan

Nigeria doesn’t have to borrow from the IMF, World Bank or any other lending organisation to supplement the 2017 budget deficit. It can, through a carefully crafted bond, get money from a broader range of people and institutions within Nigeria. A look at the West African country’s 6.357 per cent benchmark dollar bond, maturing in […]

Nigeria doesn’t have to borrow from the IMF, World Bank or any other lending organisation to supplement the 2017 budget deficit. It can, through a carefully crafted bond, get money from a broader range of people and institutions within Nigeria.

A look at the West African country’s 6.357 per cent benchmark dollar bond, maturing in July 2023 reveals that the bond has been enjoying subscription since November, 2016. The yields on the bond fell from 8.349 percentage point to 5.902 percentage point in May, 2017, with its spread gaining 246 bases points in May, 2017 against the 613 bases points at the time it was sold. This means that investors in the US are holding on to the Nigeria’s 6.375 dollar bond and the difference in borrowing money for bonds in USD as against the same bond in the US is narrowing. 

The US Federal Reserve chairman, Alan Greenspan, during the tenure of President Bill Clinton once said this about bond “if bond prices continue to rally, it would be by far the most potent [economic] stimulus that I can imagine.” The question is; what could make a public official talk with such reverence about a mere market for the buying and selling of government IOUs? I would say because bond markets are the fundamental base for all markets. The cost of credit, the interest rate [on a benchmark bond], ultimately determines the value of stocks, homes and all asset classes. It also passes daily judgement on the credibility of every government’s fiscal and monetary policy. 

The DMO, having rolled out the FGN Saving bond aimed at raising about N50 billion, the Sukuk bond, and with other special purpose bonds in the making,  it is needless for the Federal Government to opt for borrowing elsewhere when in fact, it can source the money from within the country. Largely, Nigeria has a robust pension savings, which ends up being invested in the bond markets and government is regarded as the most reliable of borrowers.

The only reservation here is, for DMO to guard against the risk of default on their commitments because the more bonds they sell, the higher the risk of default. When default perception happens and bonds holders begin to tip, bond prices fall and interest rates soar, with painful consequences for all borrowers. It becomes a circle. Sooner or later the government faces three stark alternatives. Does it default on a part of its debt, fulfilling the bond market’s worst fears?  Does it reassure the bond market, cuts expenditures in some other area, thereby upsetting voters or vested interests? Or does it try to reduce the deficit by raising taxes? No government wants to answer these hard questions, therefore adequate corporate governance must be in place as Nigeria crafts its way into self-sufficiency.

Lawan Sanya wrote from Abuja.