Can Nigeria's domestic market sustain borrowing appetite?

Nigeria's government has been grappling with high global interest rates, prompting a shift towards the domestic market for borrowings and an increased reliance on concessional borrowing. The pressing question remains - can the domestic market adequately sustain the government's borrowing appetite? In a recent interview with CNBC Africa, Wonuola Akanbi, Head of Energy and Infrastructure Sales, Global Market at Stanbic IBTC Bank, shared valuable insights on the intricacies surrounding Nigeria's debt sustainability and the potential strategies to navigate this complex landscape. Debt sustainability is a critical concern in Nigeria as the current debt stock stands at approximately 48 trillion naira. Projections indicate an additional 22 trillion naira, bringing the total debt stock to an alarming 68.7 trillion naira, equivalent to 35% of the country's GDP. While this debt-to-GDP ratio may seem sustainable on the surface, the real challenge lies in Nigeria's revenue generation capacity, with a staggering 86% debt to revenue ratio. Akanbi emphasized the urgent need for the government to focus on boosting revenues through increased production levels and attracting foreign direct investment to spur economic growth. One key factor supporting Nigeria's borrowing endeavors is the substantial liquidity available in the local market, primarily driven by pension funds and other institutional investors. Despite the current appetite for Nigerian debt instruments, concerns loom regarding the sustainability of this trend. Akanbi highlighted the importance of diversifying the asset classes available in the market to attract a broader investor base and mitigate potential risks associated with over-reliance on a few investor types. Shifting focus to Ghana, Akanbi shed light on recent dynamics in the Ghanaian market following the IMF disbursement of 600 million dollars, which came with stringent conditions necessitating debt restructuring. Ghana embarked on a series of debt restructuring initiatives targeting local banks and international creditors, aiming to alleviate its debt burden. However, the total debt restructuring efforts exceeding 60 billion Ghanaian cedis underscore the need for sustained financial reforms and additional debt exchanges to secure the remaining IMF tranche. When questioned about the possibility of debt restructuring in Nigeria akin to Ghana's strategy, Akanbi expressed caution, highlighting the delicate nature of such initiatives and their potential market impact. While Nigeria has undertaken some restructuring measures like converting Ways and Means into bonds, further extensive restructuring involving pension funds and foreign investors may trigger market volatility and investor apprehension. Akanbi stressed the importance of exploring alternative revenue sources and economic reforms to reduce the reliance on debt. In the realm of foreign exchange, Akanbi addressed the fluctuating trends in Nigeria's currency market, emphasizing the need for increased liquidity to stabilize the Naira. While the removal of the pegged exchange rate initially weakened the Naira, subsequent efforts are directed towards finding a sustainable equilibrium through enticing foreign investors and enhancing foreign direct investment inflows. As Nigeria navigates its debt sustainability challenges, the insights shared by Akanbi underscore the imperative for a balanced approach encompassing revenue enhancement, diversified market participation, and prudent fiscal management. The path ahead necessitates concerted efforts to bolster economic fundamentals, attract investments, and ensure sustainable debt management practices to safeguard the country's financial stability and future growth prospects.