{"id":799,"date":"2023-10-23T09:47:06","date_gmt":"2023-10-23T09:47:06","guid":{"rendered":"https:\/\/arritoneconsult.com.ng\/blog\/?p=799"},"modified":"2023-10-23T09:47:07","modified_gmt":"2023-10-23T09:47:07","slug":"nigerian-government-shifts-borrowing-focus-to-domestic-market","status":"publish","type":"post","link":"https:\/\/arritoneconsult.com.ng\/blog\/2023\/10\/23\/nigerian-government-shifts-borrowing-focus-to-domestic-market\/","title":{"rendered":"Nigerian Government Shifts Borrowing Focus to Domestic Market"},"content":{"rendered":"\n

In response to the soaring costs of international borrowing, driven by a significant drop in the value of the naira, the Nigerian Government Shifts borrowing strategy to finance the N9.05 trillion budget deficit. The decision to focus on the domestic financial market was revealed in the Medium Term Expenditure Framework (MTEF) for 2024-2026, released over the weekend.<\/p>\n\n\n\n

For several years, the Nigerian Government Shifts Borrowing heavily relied on Eurobonds and other sources, including bilateral agreements and support from the World Bank and International Monetary Fund, to meet its deficit financing needs.<\/p>\n\n\n\n

In 2023, the government financed its deficit, amounting to N11.6 trillion, with only 31.9 percent from domestic borrowing, while the majority, 68.1 percent, was raised through foreign borrowings. However, the MTEF for 2024-2026 indicates a shift, with over 66 percent, roughly N6.0 trillion, of the N9.05 trillion total deficit in 2024 being sourced from the domestic market.<\/p>\n\n\n\n

The consequence of the 2023 deficit financing structure in the face of the significant depreciation of the local currency was a substantially higher cost of borrowing in both 2023 and 2024. The 2024 budget is already heavily burdened with loan servicing costs, and the debt service-to-revenue ratio further deteriorated from 2023 to 2024.<\/p>\n\n\n\n

Financial analysts noted that although the higher budget figure for 2024 may have been supported by anticipated increased Naira revenue from foreign exchange sales, these gains would be offset by foreign debt servicing costs.<\/p>\n\n\n\n

Analysts at Lagos-based investment firm CardinalStone Finance provided insights into the situation, suggesting that the government’s plan to increase domestic debt sourcing aligns with expectations of further Naira depreciation, which could inflate the cost of external debt financing.<\/p>\n\n\n\n

However, the projected foreign exchange translation gains for the government’s revenue could face additional challenges due to continued Naira depreciation and uncertainties surrounding oil production and earnings. This may lead to the government exceeding the already high debt service budget for 2024.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Analysts at CardinalStone Finance expressed concern that despite likely inflows of a $3.0 billion loan from Afrexim Bank and a $1.5 billion facility from the World Bank, the dollar could trade at N850.0\/$ at the official window by the end of 2024. They also expressed worries about the potential reduction of 2024 oil inflows due to ongoing oil theft issues, as witnessed in 2023.<\/p>\n\n\n\n

Meristem Finance analysts expressed discomfort with the revenue projections, especially considering forex and oil revenue challenges. They pointed out that the budget assumptions, including an oil price of $73.96 per barrel, an exchange rate of N700.00\/USD, and oil production of 1.78 million barrels per day (mbpd), may face challenges related to curbing oil theft and addressing FX illiquidity through supply constraints.<\/p>\n\n\n\n

Afrinvest West Africa voiced doubts about the fiscal plan in the three-year MTEF, emphasizing the need to reconsider assumptions in the face of changing dynamics. The global context, marked by geopolitical tensions, slowing global growth, and rising interest rates, is expected to negatively impact oil prices and capital inflows into Nigeria. Furthermore, the steep depreciation of the Naira, driven by demand-supply imbalances, declining foreign capital inflows, weak oil production due to theft, and infrastructure deficits, casts doubt on the viability of the budget assumptions.<\/p>\n\n\n\n

In summary, the Nigerian government’s shift in borrowing strategy reflects concerns over high international borrowing costs and the impact of Naira depreciation, with a greater emphasis on domestic borrowing. However, analysts remain cautious about the assumptions underpinning the budget, given the dynamic economic and global factors at play.<\/p>\n\n\n\n

For more news visit https:\/\/arritoneconsult.com.ng\/blog<\/a><\/p>\n\n\n\n

For more educational post visit examhood.com.ng<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

In response to the soaring costs of international borrowing, driven by a significant drop in the value of the naira, the Nigerian […]<\/p>\n","protected":false},"author":4,"featured_media":800,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"footnotes":""},"categories":[28],"tags":[],"class_list":["post-799","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"yoast_head":"\nNigerian Government Shifts Borrowing Focus to Domestic Market - Arritone Consult<\/title>\n<meta name=\"description\" content=\"Nigerian Government Shifts Borrowing strategy, prioritizing domestic market due to high international costs, addressing economic challenges.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/arritoneconsult.com.ng\/blog\/2023\/10\/23\/nigerian-government-shifts-borrowing-focus-to-domestic-market\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Nigerian Government Shifts Borrowing Focus to Domestic Market - 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