The government of Nigeria is seeking the approval of the Parliament to mobilize N850 billion (about $2.3 billion) on the local money market. This, the government said, is an alternative to an initial operation to raise funds on the international market to support external deficit.

Data from the Debt Management Office show that the difference between the initial interest rates on the 11 international borrowings and their current returns on the various stock exchanges where they are listed has almost doubled. On the Eurobond coming to maturity in January 2021, which was concluded at a rate of 6.75%, investors are now requesting 16.2%.

In late 2019, Nigeria’s domestic debt reached N14,272.6 billion ($365.5 billion), on which N2,651 billion ($6.8 billion) was due for repayment in less than 12 months. To fully leverage its domestic capital market, the Central Bank should adjust its rule limiting the possibility for commercial banks to participate in public securities issues, pushing them to further finance the economy.

It should be noted that the restrictive measures set up due to the coronavirus pandemic are hugely affecting the Nigerian economy. On the international front, the lockdown imposed on nearly 5 billion people has worsened the oil situation, making prices to fall below $20, three times less than initial fiscal provisions. The oil sector contributes 90% of Nigeria’s export revenues and is a heavyweight in government revenues.

The current global situation is adding up to a weak external position for the West African nation. Investors targeting emerging countries have started divesting their businesses in the country causing strong pressure on foreign exchange buffers.

The International Monetary Fund has approved financing of $3.4 billion to Nigeria to help fight the pandemic. “The authorities’ immediate actions to respond to the crisis are welcome. The short-term focus on fiscal accommodation would allow for higher health spending and help alleviate the impact of the crisis on households and businesses. Steps taken toward a more unified and flexible exchange rate are also important,” the institution said.

Idriss Linge