Market News

• Price on West African nation’s dollar bonds extend drop
• Bond moves show ‘investor nervousness’: Ayo Salami, EMIM

By Colleen Goko-Petzer and Emele Onu

(Bloomberg) -- Nigeria’s dollar bonds were on track for one of their worst days in 17 months on Monday as investors question whether the government’s economic reform plans will be derailed by mass protests.

The spread between Nigerian dollar debt and US Treasuries widened by 46 basis points to 715, according to JPMorgan Chase & Co. data, the largest single-day increase since March 2023. Five of Nigeria’s eurobonds ranked among the worst performers in a Bloomberg index of emerging and frontier sovereign debt. The 2051 securities were hit hardest, with prices dropping to 73.06 cents on the dollar, their lowest close since November.

Africa’s most populous nation has been rocked by cost-of-living protests, driven by reforms introduced by President Bola Tinubu, including the removal of fuel subsidies and a more flexible exchange rate for the naira. While the measures have attracted foreign capital inflows, they have also intensified financial strain on citizens, fueling public unrest.

There were isolated demonstrations in some northern states on Monday as Tinubu summoned a meeting of his security chiefs to discuss ways to deal with the protests, which started on 1 August and have led to more than 20 deaths.

“Current moves in the bonds reflect investor concerns that ongoing protests could mirror those in Kenya,” said Ayo Salami, chief investment officer at Emerging Markets Investment Management Ltd. In Kenya, mass protests led to the government reversing a tax policy aimed at strengthening the budget, which then prompted downgrades to the nation’s credit rating.

Adding to investor anxiety, oil production in Nigeria has fallen below expectations, signaling a fragile fiscal outlook. 

“Overall, international investors are expressing general nervousness around Nigeria,” Salami said. In a broadcast on Sunday, President Tinubu insisted that the reforms were necessary to revive economic growth. 

Ways and Means

The government’s decision to double the limit on its controversial Ways and Means facility, which allows it to borrow from the central bank to fund the budget deficit, has raised further concerns about the fiscal outlook. The limit was raised to 10% from 5% of the previous year’s government revenue.

“This plan contradicts recent statements from the finance minister, who had indicated that Nigeria had ceased using the facility for budget financing,” said David Omojomolo, Africa economist at Capital Economics. 

“Raising the limit to 10% of revenues is a step in the wrong direction and risks reigniting the macroeconomic problems — such as high inflation and downward pressure on the naira — that have contributed to the current economic crisis,“ he said.