United Capital encourages DMO’s alternative debt instrument drive

ANALYSTS AT UNITED Capital have praised the Debt Management Office for the developments it has accomplished with alternative debt financing instruments in the Nigerian fixed income market, and called for the introduction of new instruments.

From green bonds to savings bonds and sovereign Sukuks, fiscal authorities have continued to drive the inclusion of alternative debt financing instruments in the Nigerian fixed income market.

Over the course of 2018, the DMO continued its monthly retail savings bond auction, which commenced in March 2017, wherein N2.5bn was raised between January 2018 and September 2018. Meanwhile, the federal government Sukuk offer in 2018 received a healthy dose of demand, suggesting that we might see a larger tranche for the 2019 program.

The market experts said, “the DMO should continue to keep driving the inclusion of alternative debt instruments in meeting the govWITH ernment’s funding needs as well as introducing new instruments to develop Nigeria’s capital market.”

Speaking on the issue of external debt and domestic debt mix of the country, the analysts stated that if the Debt Management Office’s debt rebalancing strategy is anything to go by, we will see more external financing, even though foreign borrowing costs have increased considerably in the wake of the Fed’s normalization process.

It is worth mentioning that external debt remains relatively cheaper than local borrowings, and Nigerian fiscal authorities, which are already burdened with domestic debt service to the tune of N1.7 trillion, would likely lean towards optimizing their borrowing strategy in favour of cheaper notes.

In terms of the debt mix, the federal government tapped into the global debt market two times in 2018, raising a total of $5.2 billion and bringing its naira to dollar debt mix to 62:38, close to its fiscal target of 60:40 by 2019.