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.