Nigeria’s bond market is already betting that the nation’s next leader, whoever it is, will not be able to repair the shambles left by the previous administration.
The investors say, the chance of much-needed reforms after February 25 appear remote and that debt service is likely going to cost more than the Federal Government revenue.
The country is in the midst of a fiscal crisis, driven by soaring debt service payments that will soon cost more than the government generates in revenue. The three main candidates vying to replace outgoing President Muhammadu Buhari at an election on Saturday have promised to right the ship, but bond performance suggests investors aren’t buying it.
Nigeria’s dollar bonds have declined 6.8 per cent over the past month, exceeding the average drop of 1.9 per cent in a Bloomberg index of emerging-market peers. The extra yield investors demand to hold Nigerian dollar debt rather than US Treasuries has risen by about 136 basis points to 817 basis points. That’s less than 200 basis points from levels traders considered “distressed.”
“Nigeria’s current economic troubles are the culmination of a multiyear slide that began under previous administrations and accelerated under President Buhari,” said Patrick Curran, a senior economist at Tellimer Ltd., a firm that specializes in emerging-market research. “The key difference is that with debt service absorbing over 100 per cent of federally-retained revenue, there is a far shorter runway to turn things around.”
Under Buhari, Nigeria’s total debt stock exploded more than six-fold to about N77 trillion ($167 billion), or 40 per cent of GDP. Much of that came in one fail swoop at the very end of his tenure, when he tucked an extra $50 billion onto the state debt pile, leaving future administrations to pay for the overdrafts his government took from the central bank over its eight years in power.