InvestingNewsNigeriaBond Investors Rushing to Nigeria – Analysts

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The early action by Nigeria to tap cheap loans has increased the risk perception among foreign investors. This led to a fall in the borrowing cost of the country.

According to Bloomberg, “Yields on Nigeria’s dollar bonds maturing in 2047 fell from an all-time high of 13.2% on March 19 to 9.1% on Wednesday. This is as the West African nation presented a revised $27 billion budget to the cabinet that kept spending intact, with a proposed record deficit of 5.4 trillion nairas ($13.9 billion), which will be financed mainly from new debt.”

The coronavirus pandemic had affected Nigeria’s economy and the reduction in the price of oil, which has been the soul of the country’s economy.

The Central Bank of Nigeria has been forced to devalue the naira as a result of the plunge in crude oil. For almost five years now, inflation has been above its target band.

In solving this problem, the country has lined up ambitious borrowing plans in its domestic bond market. It has secured $3.4 billion from the International Monetary Fund. The country expects $3.5 billion from other money lenders.

In addition, the country has also used the collapse in oil price in the international market to scrap fuel subsidy that always cost the country at least $2 billion a year.

Investors’ confidence in the country has therefore been boosted as a result of the IMF supports and other development institutions, as well as the nascent recovery in the oil price.

Edwin Gutierrez, the London-based head of emerging-market sovereign debt at Aberdeen Standard Investments analyzed.

Also, Mohamed Abou Basha, the director and head of macroeconomic analysis at EFG-Hermes said this doesn’t limit the country’s underlying weak fundamentals because of the wide-range deficit and low foreign exchange reserves serving as a barrier at the low oil prices.

Nigeria as the largest oil producer in Africa relies on sales from the commodity for about half of government revenue, has projected that its oil revenue will drop by at least 80% this year.

According to the IMF, the domestic gross deficit could widen from 6.8% from 4.8% in 2019. It says unless Nigeria gets a waiver from creditors, interest payment could be up to 96% from 58% in 2019 of the Federal Government’s revenue.

In a report published Monday by Fitch Ratings, “If secured, multilateral loans would cover around 21% of the general government deficit in 2020.”

However, investors seem not bothered. The cost of protecting the country’s debt against default has dropped by 520 basis points since March 18, the reason why creditors are feeling more secured with the country’s debt.

The IMF loan disbursed to Nigeria has also receded risk in the past few weeks. Despite the country’s public debt that will rise to 34.8% of GDP this year, from 29.1% in 2019, the IMF says it is a relatively low level when it is compared with most emerging markets.

The IMF last month in a report said it believes that the country’s debt is sustainable and there is adequate capacity to repay the fund.

Also, Charles Robertson, a renaissance capital analyst in a briefing last week in a medium-term said,

“Nigerian authorities have done well to take the IMF loan, to unify the exchange rate and to suggest that the fuel subsidy is gone forever,”

“That is an improvement for Nigeria.”

 

Bada Yusuf Amoo (Correspondent)

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