Moody’s Investor Services and New York University have reported that investors now require a four-year-high risk premium to hold Nigeria’s dollar-denominated bonds. The risk premium places Nigeria in the league of countries with the highest risk premium such as Yemen, Syria, Venezuela, Sudan, and Lebanon.
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As stated in the report, the yield premium that investors require to hold Nigeria’s 10-year benchmark bond instead of the 10-year US Treasury has surged to 11.8% in April 2023, marking the highest level since 2019.
The FGN 10-year bond yield commenced at 14.47% on April 10th, while the US 10-year Treasury yield opened at 3.36% on the same day.
The high-risk premium is suggestive of the fact that investors’ confidence in the Nigerian debt market is at an all-time low. And this is a potential issue for the incoming President who resumes office in less than 50 days.
As of December 2022, Nigeria’s outstanding commercial dollar-denominated bonds totaled $15.6 billion, according to the Debt Management Office. With loans from the World Bank, Exim Bank of China, and African Development Bank, Nigeria’s external loans total $41.69 billion.
Damilola Adewale, a fixed-income analyst noted to BusinessDay Newspaper, “Investors’ confidence in Nigeria’s market is currently at historic lows; the next government will struggle to raise capital. For Nigeria, it means any security especially bonds issued in the international capital market, would be priced at a high rate by investors.
“Nigeria’s high-risk premium means the government would spend more to raise external capital, and even more to service its debts.” He added.
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In 2022, Nigeria’s debt service to revenue ratio soared to 80.6%, significantly surpassing the World Bank’s recommended threshold of 22.5% for low-income nations such as Nigeria. And as a consequence, Nigeria’s credit rating was downgraded by Moody’s while S&P reviewed their outlook of Nigeria from stable to negative.
