Is Nigeria’s domestic borrowing target within reach?

Nigeria's Debt Management Office has managed to raise two trillion naira in the first quarter of the year through the issuance of FGN bonds in the local debt market. The government is optimistic about replicating this success in the second quarter, aiming to achieve a domestic borrowing target of 7 trillion naira for the year despite facing liquidity challenges. Egie Akpata, the Chairman of Skymark Partners, shared insights on the current liquidity conditions and the outlook for the coming months in a recent interview with CNBC Africa. The interview shed light on important topics such as debt levels, foreign borrowing, corporate bonds market, and the sustainability of Nigeria's debt in the face of changing administrations. Let's delve deeper into the key points discussed in the interview. Mr. Akpata highlighted the impact of the naira swap situation in the first quarter, where over two trillion naira entered the banks but remained in the system, contributing to improved liquidity. This liquidity injection played a crucial role in enabling the federal government to exceed its borrowing targets significantly, with a total of 2.3 trillion naira raised from bonds and treasury bill sales. However, Akpata noted that replicating this feat in the second quarter would be challenging, as the liquidity conditions are expected to be less favorable. He emphasized the importance of liquidity in driving bond issuances and raised concerns about the potential limitations in the upcoming months. The discussion then shifted to the dynamics of foreign borrowing and the risks associated with accumulating debt denominated in foreign currencies. While acknowledging the increase in Nigeria's foreign debt levels, Akpata highlighted the necessity of foreign borrowing to support the economy and build reserves. He pointed out that as long as lenders are willing to provide funds, the cycle of borrowing can continue, but cautioned about the potential challenges posed by significant repayments in the future. Akpata also addressed the outlook for the corporate bond market, noting that companies often wait for audits to be completed before tapping into the bond market. He expressed optimism that as more audit reports become available in the coming months, corporate bond activities may pick up. However, he highlighted the current high interest rates in the market as a deterrent for some companies, and suggested that a decrease in federal government bond yields could stimulate corporate bond issuances. Lastly, the interview explored the sustainability of Nigeria's debt amid changing administrations and shifting economic policies. Akpata differentiated between Naira and foreign currency debt, stating that the real challenge lies in servicing foreign currency debt, which accounts for over $2 billion annually. He noted that while Naira debt does not pose a significant problem currently, the increasing cost of servicing foreign debt could become a concern in the future. As Nigeria navigates its domestic borrowing targets amidst liquidity challenges and evolving economic conditions, stakeholders will closely monitor the government's debt management strategies and fiscal policies to ensure sustainable economic growth and stability.