Operators in the Nigerian capital market have said the Federal Government’s plan to curb borrowing from international capital markets will boost the demand for the domestic bond market.
Recall that Nigeria’s Minister of Finance, Zainab Ahmed, had disclosed in a discussion during the annual meetings of the International Monetary Fund and World Bank in Washington that the country planned to bring its key debt service-to-revenue ratio down sharply in 2023 and would not borrow on the international capital markets.
According to the IMF, Nigeria’s government spent 80 per cent of its revenue on debt servicing in 2022, a ratio that could rise to around 100 per cent.
In an interview with Bloomberg, Ahmed said, “80 per cent is not sustainable and our plan is that it is coming down to 60 per cent in 2023.”
Speaking with The PUNCH, Head of Capital Markets and Treasury at Dash, Ayotunde Alabi, said the decision by the Federal Government to cease borrowing from the international capital market was laudable, considering the interest rates. He noted that the decision may lead to re-issuance of an existing instrument.
He said, “The market should expect the yield environment to climb higher because the government would want to encourage more subscriptions in their issuances. There will also be increased yield in the domestic fixed-income market.”
He, however, warned that the rising yields in the domestic fixed-income market may drive more investors away from the equity market.
The Vice Chairman of Highcap Securities Limited, David Adonri, maintained that the recent Fitch reports’ downgrading of Nigerian sovereign Eurobonds to B- contributed to foreign investors’ negative sentiments towards the country.
He said, “The investors in Eurobonds are international investors. And a lot of them are reluctant to invest in Nigerian Eurobonds sovereign rating of Nigeria is B- according to Fitch.
“A lot of these foreign investors are cautious to put their money into Nigerian Eurobonds because of fear of sovereign default. The only alternative for the Federal Government is to concentrate on raising funds locally.”
He added that few foreign investors patronising Nigerian foreign bonds were demanding higher interest rates and a very high-risk premium, making it difficult for the Federal Government to continue borrowing from that market.
Meanwhile, speaking to The PUNCH on the implications of downing international borrowing in 2023, Chief Executive Officer, Greenhouse BDA Limited, Rotimi Fakayejo, said the decision to curb borrowing from the international capital markets would reduce the competitiveness of Nigerian banks and create an all-encompassing problem for the country’s economy.
He said, “The ratings of the Nigerian banks will greatly be affected on the international stage. It is going to affect their competitiveness in the international space.
“The kind of correspondent transactions that they used to have before will be greatly affected and titled. It will also be international trade. It is an all-encompassing negative for Nigeria.”
