To prevent financial insolvency, the Federal Government of Nigeria is expected to borrow a staggering N21 trillion in 2024, as disclosed by Standard Chartered Bank.
This move comes against the backdrop of the government’s ambitious plan to spend N28.7 trillion in its 2024 budget.
According to Ayodeji Adelagun, head of financial markets, at Standard Chartered Bank Nigeria Limited, the necessity to borrow such a substantial amount is fueled by inflation rates soaring to 28.9 percent.
“In 2024, N21 trillion must be borrowed. If you have to borrow that amount of money and inflation is at 28.9 percent, it is only logical and it is just what must happen that rates must rise, at least to make sure that your return is positive,” Ayodeji said.
Analysts are of the view that the looming borrowing is expected to have far-reaching implications, impacting households, businesses, and the overall economy.
They hinged the success of this borrowing on judicious utilisation. If invested wisely in productive sectors, it could spur economic growth, job creation, and benefit businesses.
However, mismanagement could lead to inflation, heightened debt burdens, and adverse consequences for households and businesses.
Amid these financial manoeuvres, confidence is slowly building in both local and global markets.
According to him, the current policies are aimed at stabilising the exchange rate, with the Central Bank of Nigeria (CBN) actively managing liquidity to reduce the volume of cash chasing foreign exchange (FX).
Ayodeji said the trajectory of these policies was contingent on achieving stability in FX liquidity, as initiatives such as the Afreximbank/NNPC securitisation, World Bank support, and potential Eurobond issuance were anticipated to contribute to improved liquidity, adding that foreign portfolio investors (FPIs) were closely watching these developments, with concerns about ease of entry and exit.
He noted that the recent efforts by FMDQ to publish market prices reflective of parallel markets were seen as positive, potentially attracting FPIs. While the adjustment may not happen immediately, it sets the stage for increased investor interest.
In light of the 28.9 percent inflation rate, he said the monetary policy was leaning towards inflation targeting. This translates to an expected rise in interest rates, with interbank, OMO, and treasury bills rates hovering around 14 percent. The government aims to attract FPIs by offering competitive rates and simultaneously combating inflationary pressures tied to the exchange rate.
Speaking at the unveiling of the 2024 global outlook, in Lagos, Manpreet Gill, Chief Investment Officer for Africa, Middle East and Europe at Standard Chartered Bank’s wealth management unit, said: “In our outlook 2024 report, we favour an overweight position in global equities and bonds, which comes at the expense of an Underweight in cash.”
“We also hold benchmark allocations in gold and alternative strategies. There is almost always a lot to worry about in financial markets, but we believe getting and staying invested in a diversified portfolio, instead of staying in the perceived safety of cash, is likely to best serve investor goals over the long run,” he said.