(Ecofin Agency) - The Nigerian financial market is reacting favorably to Tinubu's promises to remove fuel subsidies to finance infrastructure and unify exchange rates. However, the future remains uncertain regarding the economic challenges ahead and the repayment of subsidies.
In Nigeria, financial market actors continue to welcome the promises made by President Ahmed Bola Tinubu (photo) during his inaugural address where he promised to remove fuel subsidies, allocating them instead to infrastructure projects, and to unify naira exchange rates.
Investors were enthusiastic about the country's debt securities. For example, on almost all Eurobonds issued by Nigeria, yields expected by investors have fallen by at least one percentage point. This signals increased demand and that higher prices are offered to acquire them. On Monday, May 29, the Nigerian Stock Exchange All Share Index was the best-performing index across Africa, according to data from African Markets.
Concerning the country’s debt, creditors may believe that cutting the fuel subsidies will give the government much wiggle room to finance other projects and, above all, easily repay its debts. On the Lagos Stock Exchange, investors are hoping that the unification of exchange rates will reduce pressure on import costs and enhance consumer capacity.
It is worth noting that the All Share Index has recovered to the pre-2008 financial crisis level. In addition, the new oil refinery inaugurated by business mogul Aliko Dangote has now been commissioned and is expected to supply most of the fuel the country needs. This will effectively help reduce the subsidy but, there is no indication that it will help maintain prices at the current levels.
So, nothing is certain, and it remains to be seen how the Tinubu administration will tackle the country’s macroeconomic challenges. One such issue is the case with the national oil company (NNPC), which announced that the government still had to pay $6 billion in not-yet recovered subsidies.