Editor’s note: This is general educational information about why a government that issues its own currency still borrows in dollars, using Nigeria’s published debt strategy and Eurobond stock as the worked example. It is not investment advice and it is not a view on any security. All figures come from the official documents listed at the end.

A sovereign that controls its own printing press can always produce naira. It cannot produce dollars. That single asymmetry is the whole subject of foreign currency sovereign borrowing, and Nigeria’s Debt Management Office writes about it more plainly than most commentary does. Its Medium Term Debt Management Strategy 2024 to 2027 sets out four alternative borrowing strategies, prices each one, and recommends the one that is cheaper and riskier rather than the one that removes foreign currency exposure. Reading that document alongside the government’s outstanding Eurobonds shows what the trade is.

The stock of foreign currency debt

The Debt Management Office publishes closing prices and yields for Nigeria’s Eurobonds. As at Monday, August 31, 2026 the schedule listed fifteen outstanding issues, from a 6.500% US$1.5B bond maturing in November 2027 to an 8.25% US$1.25B bond maturing in September 2051, with individual issue sizes ranging from US$700M to US$1.5B. Each line carries a yield at issue, which is the price the sovereign agreed at the time, and a current market yield.

Those two columns tell different stories along the curve. The 6.500% November 2027 bond was priced at a yield at issue of 6.500 and was quoted at a yield of 5.625, with a price of 100.022. The 10.375% December 2034 issue, priced at a yield at issue of 10.375, was quoted at 7.211 on a price of 119.428. At the long end the 7.625% November 2047 bond was quoted at a yield of 7.869 on a price of 97.485, above the yield at which it was issued. The stock is therefore a record of borrowing conditions across many years, not a single cost of funds.

What the strategy document actually chooses

The Medium Term Debt Management Strategy compares four alternative borrowing strategies, each defined by the split of new borrowing between domestic and external sources. Strategy 1 retains existing external funding sources including the issuance of Eurobonds subject to market conditions, with a domestic to external distribution of 80:20. Strategy 2 increases foreign currency financing from multilateral and bilateral sources, thereby reducing reliance on Eurobond issuance, at 77:23. Strategy 3 aims to reduce foreign currency denominated debt compared with Strategy 2, compensating with more domestic borrowing, at 86:14. Strategy 4 meets financing needs mostly from domestic sources at 89:11.

The office simulated all four using the IMF and World Bank MTDS Analytical Tool. Projected to end 2027, the implied interest rate ranges from 12.24% under Strategy 2 to 13.94% under Strategy 4, and FX debt as a percentage of total debt ranges from 42.61 under Strategy 2 down to 37.50 under Strategy 4. The direction is consistent across the table: the strategies that borrow more at home cost more in interest, and the strategies that borrow more abroad carry more currency risk.

The recommendation is explicit about accepting that trade. Strategy 2 “presents a more favorable trade-off between costs and risks and is hereby recommended”, with a lower interest payment to GDP ratio and lower refinancing risk from less short term debt, a higher average time to maturity and a smoother redemption profile. The document then states the cost of that choice in the same breath: “However, it has a higher level of foreign currency risk due to the high proportion of FX-denominated debt.”

Why the domestic option is not free

The strategy also records why borrowing at home is not simply the safer answer. The total public debt to GDP ratio was 40.57% as at December 31, 2023 and 52.25% as of December 31, 2024, up from 19% in 2019, an increase attributed to higher new borrowings, the issuance of promissory notes and the inclusion of N30 trillion of Ways and Means Advances of the Central Bank of Nigeria in the domestic debt stock. Domestic borrowing under the high interest rate regime described in Strategy 1 leans on short term FGN securities to moderate the long run cost of debt, which raises refinancing risk rather than removing it.

Maturity is the other domestic constraint. The average time to maturity of the external portfolio was 9.43 years against 12.64 years domestically in the base year, and under the recommended strategy the external portfolio lengthens to 9.75 years while the domestic portfolio comes in at 10.75 years by end 2027. Foreign currency issuance buys long dated money in size, which is exactly what a domestic market dominated by treasury bills cannot supply in the same quantity.

Currency movement makes the point concrete. The office notes that the exchange rate of USD1/N800 used in the appropriation act to prepare the strategy was jettisoned because the official rate was higher, and that the end period exchange rate as of December 31, 2024 was USD1/N1,535.32. Every dollar of external debt outstanding across that move became more expensive in naira without the government borrowing another cent.

Analysis: the choice is priced, not avoided

The most instructive feature of this document is that it attaches a cost to every one of the four options. Four strategies are laid out, and the one selected is the one with more foreign currency exposure than two of the alternatives, chosen on cost and refinancing grounds and accompanied by a written acknowledgement of the risk taken. That is what makes the Nigerian strategy readable as a case study rather than a slogan. A government issuing in its own currency escapes default risk in the narrow sense and pays for that escape twice: in the interest rate its domestic market demands, and in the tenor that market is willing to lend for.

The portfolio composition targets underline how much this has already moved. The strategy records a domestic to external mix of 67:33 in the earlier period against targets of a maximum 70 domestic and a maximum 30 external, with actuals of 57:43 and then 48:52 in the review years. A portfolio that has crossed into majority external is a portfolio in which a currency move, not a fiscal decision, is the dominant driver of the naira value of the debt stock. That is the context in which a new borrowing distribution of 77:23 should be read: the flow is heavily domestic while the stock is not.

The Eurobond price table adds the market’s side of the same conversation. Bonds issued at double digit yields now quoting in the sevens, and long bonds quoting above the yields at which they were sold, describe a borrower whose access has improved since some of that paper was priced. What the table cannot show is the naira cost of servicing it, because the coupons are fixed in dollars while the exchange rate is not. The Commission’s own investor education material defines a bond’s coupon rate as the annual interest rate paid as a percentage of the bond’s par value, determining the amount paid to the holder at regular quarterly, semi-annual or annual intervals, which is precisely the dollar figure that a naira depreciation cannot touch even as it raises what servicing that figure costs the government.

What a careful reader would look at next is the gap between plan and execution. The strategy sets a target distribution of new borrowing; the debt statistics report what was actually issued. The office publishes external debt stock and total public debt data separately and on its own schedule, and comparing the realised domestic to external split against the 77:23 target is the only way to know whether the recommended strategy is the one being followed.