Minister of Finance, Budget and National Planning, Zainab Ahmed, has announced that the Federal Government’s plan to limit borrowing from international capital markets is expected to increase demand for the domestic bond market. During discussions at the annual meetings of the International Monetary Fund (IMF) and World Bank in Washington, Ahmed revealed that Nigeria aims to significantly reduce its debt service-to-revenue ratio in 2023 and will refrain from borrowing in international markets. The IMF reported that Nigeria spent 80 percent of its revenue on debt servicing in 2022, a figure that could rise to around 100 percent. Ahmed emphasized that a ratio of 80 percent is unsustainable and expressed the intention to lower it to 60 percent this year.
Ayotunde Alabi, Head of Capital Markets and Treasury at Dash, commented on the government’s decision to stop borrowing from international markets, calling it a commendable move given the prevailing interest rates. He suggested that this strategy might lead to the re-issuance of existing instruments and predicted that the yield environment would increase as the government seeks to attract more subscriptions for its issuances. However, he cautioned that rising yields in the domestic fixed-income market could deter investors from the equity market.
David Adonri, Vice Chairman of Highcap Securities Limited, pointed out that the recent downgrade of Nigerian sovereign Eurobonds to B- by Fitch has contributed to negative sentiments among foreign investors. He noted that many international investors are hesitant to invest in Nigerian Eurobonds due to concerns over potential sovereign default. Adonri argued that the Federal Government’s only viable option is to focus on raising funds locally, as the few foreign investors still interested in Nigerian bonds are demanding higher interest rates and substantial risk premiums, complicating the government’s borrowing efforts.
Rotimi Fakayejo, Chief Executive Officer of Greenhouse BDA Limited, discussed the implications of reducing international borrowing in 2023. He warned that this decision could diminish the competitiveness of Nigerian banks and create broader economic challenges for the country. Fakayejo stated that the international ratings of Nigerian banks would likely suffer, impacting their competitiveness on the global stage. He added that the reduction in borrowing would adversely affect correspondent transactions and international trade, resulting in widespread negative consequences for Nigeria’s economy.
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