Plans by the federal government to bridge the huge deficit in the 2020 budget through external borrowing may be jeopardised as financial analysts see the raging Coronavirus pandemic as likely to shut external borrowing debt markets to borrowers, particularly Nigeria and others in Africa.
The federal government had planned to raise Eurobond totalling $3.3 billion to bridge the deficit of N2.175 trillion budget this fiscal year.
The Appropriation Act, 2020 includes a provision of N850 billion (about $2.786 billion) as new external borrowing in the 2020 fiscal year.
In addition to the USD2.780 billion for the budget, Nigeria has a USD500 million Eurobond, which will mature on January 28, 2021.
The DMO has said, given that the Eurobond will mature early in the year 2021, the plan is to refinance it through the issuance of a Eurobond in 2020. Thus, the new external capital raising for the year 2020 to part finance the 2020 budget deficit and refinance the Eurobond maturing in January 2021 is USD3.3 billion.
But analysts, especially in Capitulum Asset Management and Gemcorp Capital, have argued that sub-Saharan Africa countries may have to shelve plans for Eurobond issuance as yields rise and the spread of the coronavirus limits travel.
Earlier analysis of the global debt markets by J.P. Morgan Chase & Co indicated that after rising 40 basis points in February, average sovereign dollar-bond yields in the region have climbed 100 basis points so far in March to the highest in more than a year, as against an increase of 60 basis points for emerging markets more broadly.
Commenting on the current global debt markets situation, the London-based chief economist at Gemcorp, Simon Quijano-Evans, said: “Sub-Saharan Eurobond issuers will probably have to wait for the next window, given the strong drop in commodity prices that has led to the region underperforming emerging-market peers in the past week.
“There’s the likelihood that roadshows will be very difficult given the coronavirus and the current preference for safe-haven instruments”, the analyst added.
The post COVID-19 threatens FG’s $3.3bn borrowing plans for budget 2020 appeared first on Daily Trust.