Foreign debt stock grew by 29.30 per cent, from $18.91billion in 2017 to $24.45billion at the end of 2018.
Analysts at Cowry Asset Management Limited, in a recent report, said foreign borrowings appeared to have reached a “cautionary level”.
In the report, titled, “Nigeria’s 2019 Post Election Inflation, Interest Rate Outlook and Investment Strategies,” they explained that foreign debt stock also grew by 137.41 per cent from $10.72 billion in 2015, an amount that had also increased external debt service to revenue ratio.
“We anticipate an increase in fixed income yields in the domestic bond market, particularly in the second half of 2019, partly due to expected increase in borrowings on account of anticipated increase in fiscal deficit,” the analysts said.
They added that the domestic interest rates were expected to remain in double digits, most likely above 15 per cent for NIBOR, given a number of influencing factors such as decisions on the United States Fed rate, coupled with anticipated increases in Nigeria’s fiscal deficit, as well as general price level.
They said, “Monetary policy in the world’s largest economy, the US, is expected to pose a slightly dovish stance in the light of latest global economic realities tinged with uncertainties, which informed a slower global growth forecast by the International Monetary Fund, of 2.9 for 2019 (from an estimated 3.0per cent for 2018).
“It is doubtful that we will see aggressive Fed rate hikes, given relatively weak global business and consumer confidence levels, a stronger dollar vis a vis weaker trading pairs, and slower growth expectations for Europe and China. Hence, the risk of portfolio outflows appears somewhat abated, thus reducing expectations of increasing interest risk to attract foreign portfolio investors.”
The analysts foresaw local equities bouncing back into the green territory in the event of a post violence-free Presidential election and subsequently closing the year on a positive note.
This is against the backdrop of the turnaround by the US Federal Open Market Committee on its decision to further hike the Fed rate amid concerns of slower global economic growth. However, we should see the local bourse rebound stronger if a market-friendly Presidential candidate eventually emerges. If these conditions are met, we expect foreign investors to return to the Nigerian market and take advantage of the cheap value stocks by buying the dip,” they said.
In the domestic economy, the analysts also expect the Central Bank of Nigeria to retain the benchmark interest rate at 14 per cent, in line with benign inflation expectations and given the need to support economic growth.
“But we do not see a moderation in this key interest rate in the short term, due to the need to accommodate investors’ appetite for positive real returns,” they added.
