The Eurobond: A Critique of Its Increasing Utility as a Global Debt Instrument in Nigeria

Abstract

Government external borrowing is no new phenomenon in Africa. Many African countries, including Nigeria, often explore external financing whether to fund domestic projects  or out of a need for foreign currency. In fact, Nigeria’s debt history with the World Bank and the International Monetary Fund is common knowledge. However, in addition to  loans, governments also adopt instruments such as bonds to raise capital in the international capital market. One of such instruments is the Eurobond. The Eurobond is a type of  bond sold to investors in domestic markets outside the country of the currency in which the bond is denominated. In Nigeria, the Eurobond has become a major instrument of    external borrowing accounting for up to one-third of Nigeria’s total external debt. Since its adoption by the federal government, many private organisations have also followed suit.  The Eurobond is simpler when compared with other instruments, due to the absence of strict regulation. However, despite its attractions, the increasing use of the Eurobond  raises several economic implications for the country. With relatively simpler conditions, the frequent use of the Eurobond is increasing the country’s external exposure at a rapid  pace. This article provides an overview of the Eurobond, its key features as well as its application in Nigeria. It further discusses the attractions to and identifies legal issues in  connection with the Eurobond. Finally, this article presents economic implications of the increased use of the Eurobonds and recommends alternative options of financing.