As Nigeria grapples with its debt dynamics, expert voices weigh in on the delicate equilibrium between issuance and investor sentiment. Thys Louw, seasoned portfolio manager at Ninety One, highlights the central concern: the divergence between debt issuance and inflows into dedicated funds. For high-yield issuers, this divergence poses a significant challenge.
In a Reuters report, Louw explains, “There’s some cash on the sidelines, but I remain cautious. To give the green light—‘Kenya, you can go; Nigeria, you can go’—we need to witness sustained inflows.”
Nigeria stands at a crossroads, seeking to attract investment while remaining vigilant to bolster financial resilience. The delicate dance between risk and opportunity will shape Nigeria’s debt trajectory in the coming months.
In a remarkable surge, sovereign debt sales from developing nations have reached an all-time high for January, totalling a staggering $47 billion. While major emerging markets have executed substantial bond offerings, a lack of investor inflows into dedicated funds threatens riskier issuers’ recovery.
Countries like Saudi Arabia, Mexico, Hungary, and Romania have captured investor attention and capital through successful bond offerings. However, dedicated emerging market debt funds continue to face headwinds, with investors withdrawing approximately $1.6 billion year-to-date.
Paul Greer, portfolio manager of emerging markets debt and foreign exchange at Fidelity International, observes, “I believe there’s still an allocation bias toward equity markets. Eventually, capital will flow back into fixed income and benefit emerging markets—it’s just taking longer than anticipated.”
Ivory Coast’s re-entry into the international capital markets after two years signals renewed confidence in the region’s economic prospects. Yet, the divergence between issuance and investor flow remains a critical concern, as emphasized by Thys Louw.
While global sovereign debt sales have surged, Nigeria’s public debt stock stood at a staggering N46.25 trillion (US$103.11 billion) in the fourth quarter of 2022. External debt accounted for 40.44% of the total, with domestic debt making up the remaining 59.56%.
Lagos recorded the highest domestic debt in Q4 2022, totalling N807.21 billion, while other states like Delta and Ogun also feature prominently in the debt landscape. Nigeria’s debt-to-GDP ratio remains below critical thresholds, signalling relative stability.
Thys Louw underscores the delicate balance between debt issuance and investor confidence: “Nigeria must navigate this delicate balance as it seeks to attract investment and bolster its financial resilience.”
