Why Nigeria is looking beyond Eurobonds for foreign financing

Nigeria has raised more than $4.5 billion from international investors in the last two years, attracting record demand despite concerns over debt levels, foreign exchange volatility, and sweeping economic reforms.

In December 2024, the country returned to the Eurobond market for the first time since 2022, raising $2.2 billion from investors whose orders exceeded $9 billion. Less than a year later, Nigeria returned, securing another $2.35 billion after attracting more than $13 billion in subscriptions, the largest order book in the country’s Eurobond history.

The strong investor appetite suggests that international markets remain open to Africa’s largest economy.

Yet rather than returning immediately to the Eurobond market for fresh financing, the federal government is pursuing a proposed $5 billion financing arrangement with First Abu Dhabi Bank, highlighting a broader shift in how the country is thinking about external borrowing.

The move has sparked debate among economists and market analysts over whether Nigeria should continue relying primarily on Eurobonds or increasingly explore alternative sources of foreign financing.

For Titilayo Daramola, a fixed-income analyst, the government’s interest in the UAE-backed arrangement may not necessarily reflect dissatisfaction with the Eurobond market.

“Nigeria just recently accessed the Eurobond market late last year, so going there again is not really good timing,” Daramola said.

“I believe the government going this bilateral agreement route is just trying to explore other avenues of borrowing, not necessarily a preference since they’ve already explored the Eurobond space.”

Her view reflects a growing reality facing sovereign borrowers globally. With interest rates remaining elevated and geopolitical tensions adding uncertainty to financial markets, governments are increasingly seeking financing options outside traditional bond markets.

The attraction of bilateral financing arrangements is often speed and flexibility.

Unlike Eurobond issuances, which require extensive investor roadshows, book-building exercises and market pricing, bilateral transactions can be negotiated directly with a lender and executed more quickly.

Some analysts also argue that structured financing arrangements may provide governments with greater room for negotiation than public market borrowings.

Adebisi Sobalaje, group financial controller at SanlamAllianz Nigeria Insurance Limited, acknowledged that bilateral arrangements can offer advantages where financing needs are urgent.

“In a well-structured swap agreement, it is cheaper than a Eurobond because of macroeconomic indices,” Sobalaje said.

“If the associated concerns are addressed, swap agreements are faster, potentially come with lower financing costs and provide benefits that accrue through the bilateral relationship.”

However, the proposed UAE transaction has also reignited concerns around transparency and risk. The International Monetary Fund recently advised Nigeria to exercise caution over the arrangement, arguing that the country has access to more transparent funding sources, including Eurobonds and concessional financing.

Some economists share those concerns.

One economist who asked not to be named said the complexity of the arrangement could create challenges that may not be immediately visible.

“We acknowledge the fact that the swap agreement is associated with foreign exchange inflows that would boost external reserves, but the authorities are failing to interrogate the terms and conditions, which look complicated and overwhelming,” the economist said.

According to the analyst, questions remain about how such arrangements perform under adverse conditions, including periods of currency depreciation or declines in the value of underlying assets.

While the debate has largely focused on whether Eurobonds or bilateral financing structures are preferable, some economists argue that the more important issue lies elsewhere.

Faith Iyoha, an economist at the Nigerian Economic Summit Group (NESG), said debt sustainability depends less on the source of financing and more on the terms of borrowing and the productive use of the funds.

“The financing structure matters, but ultimately debt sustainability depends less on who lends and more on the terms of borrowing and the use of the borrowed funds,” Iyoha said.

According to her, both Eurobonds and bilateral facilities can become problematic if they finance consumption rather than investments that strengthen the economy’s productive capacity.

She said that external borrowing is most defensible when directed toward projects capable of generating future economic returns, jobs, and foreign exchange earnings.

“If Nigeria raises $5 billion, the funds should be directed towards investments that expand productive capacity, generate foreign exchange and create jobs,” she said.

Iyoha identified infrastructure, export-oriented industries, and human capital development as areas where borrowed funds could generate long-term economic benefits.

Her position points to a broader challenge confronting policymakers.

Nigeria’s external financing needs remain significant as the government seeks to close infrastructure gaps, support economic growth, and manage fiscal pressures. At the same time, rising debt service obligations have increased scrutiny over how new borrowing is structured and utilised.

As policymakers evaluate their options, economists say the conversation should extend beyond whether funds come from Eurobond investors or strategic foreign lenders.

“The critical question is not whether Nigeria borrows from the market or from a strategic partner,” Iyoha said.

“The critical question is whether the borrowed funds are invested in assets that generate growth, jobs, and foreign exchange. Debt becomes a burden when it finances consumption, but it becomes a catalyst when it finances productivity.”

For Nigeria, the growing debate over Eurobonds and alternative financing structures may therefore be less about where the money comes from and more about what the country ultimately does with it.