Nigeria Considers Selling Naira-Denominated Bonds Next Year

Nigeria is considering selling naira-denominated bonds abroad next year to fund infrastructure projects, Finance Minister Zainab Ahmed said.

Africa’s biggest oil producer faces a significant increase in financing needs as it struggles to boost revenue required to fund increased spending on infrastructure. Almost 60% of Nigerians don’t pay tax and the state only collected 58% of its revenue target in the first half of this year.

The so-called Jollof bonds, named after a popular West African rice dish, will help shield the government from foreign-exchange risks, Ahmed said. The sale would follow similar offerings by nations such as India, she said.

“India has done Masala bonds,” Ahmed said in an interview Thursday in Abuja, the capital, referring to offshore rupee-debt sales. “What it does is protect us from exchange-rate differentials.”

Ahmed said the government plans to hold meetings with investors to gauge the level of interest in international markets, including meetings during a summit in the U.K. in January. It’s also considering a green-bond offering next year, she said.

The Jollof debt may struggle to sell with pressure building on the naira.

Nigeria’s central bank has stepped up intervention in the foreign-exchange market and restricted U.S. dollars for imports of dozens of products to keep the naira from weakening, after a series of devaluations that began in 2015.

“Investors are watching foreign reserves, the fact that they have been falling, and that in itself is a concern,” said Yvonne Mhango, Sub-Saharan Africa economist at Renaissance Capital in Johannesburg. “The interest rate must be attractive enough to compensate for any currency risk.”

Since August, Nigeria’s gross foreign reserves have fallen by $4 billion to $40.5 billion, according to central bank data.

In earlier comments at a conference in Abuja, Ahmed said concerns about Nigeria’s debt sustainability stem from low levels of public revenue and not the size of the debt load.

“Although Nigeria’s debt-to-GDP ratio is relatively low at 23.4%, debt interests consume about half of government revenue.