Nigeria’s Risk Premium Now Matches Syria and Sudan, Hits 4-Year High

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David Olujinmi

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.

Also Read: How to Stabilize the Naira

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.

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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.

Also Read: FGN Bonds Sold Out In February 2023, as DMO Raises N724.9 Billion

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.

David Olujinmi

David Olujinmi studies Engineering but his true passion is research and analysis. He writes about finance, particularly the capital market, investment banking, and asset management.