Â ByÂ Obinna Chima
Analysts at Exotix Capital have stated that the federal governmentâ€™s new debt management strategy, which focuses on borrowing more foreign debts to refinance existing domestic loans will help reduce borrowing costs.
This, according to the firm, would also help reduce roll-over risk associated with shorter-tenured domestic issuance as well as provide a much-needed degree of fiscal space.
The Debt Management Officeâ€™s strategy directly targets a reduction in the countryâ€™s abysmal debt service to revenue ratio (66% during 2017).
The firm in a report on Nigeria titled: â€œFragile recovery, positive outlook -Buy,â€ noted that while the countryâ€™s Gross Domestic Product (GDP) growth had turned positive, it remained low and driven primarily by a recovery in the oil sector.
This, according to the London-based investment company, would require greater effort on behalf on the federal government to diversify the non-oil economy.
â€œDespite a downward trend, inflation remains high and persistent and we suspect that an increase in inflation is likely towards the latter half of the year fuelled by election-related expenditure and fiscal slippage.Â
â€œWe expect a cut in Nigeriaâ€™s Monetary Policy Rate in the second half of 2018 to spur domestic demand ahead of the election, notwithstanding the likely rise in inflation during this period,â€ it added.
According to Exotix, the introduction of the Investorsâ€™ & Exportersâ€™ window by the Central Bank of Nigeria (CBN) in April had been tremendously successful at bringing much-needed stability, dollar liquidity, and foreign inflows to the country.
â€œThe countryâ€™s multiple forex regime, however, remains opaque and ultimately harmful to the economy,â€ it added.
Furthermore, the firm noted that high oil prices have done little to alleviate Nigeriaâ€™s fiscal imbalances as â€œexcess profit is being siphoned into the countryâ€™s Excess Crude Account and Sovereign Wealth Fund â€“ we question both the need and timing of these accounts.â€