Analysts Projects More Borrowing Cost for Government Amid Increasing Debt Stock
- Report by analysts indicates that borrowing cost may increase for the government due to the possible issuance of more high yield bond
- They noted that CBN’s interest rate hike failed to address the inflationary pressures
- According to analysts, the escalating money supply poses challenges for the bond market
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Analysts at Comercio Partners have said that given the increasing money supply, the CBN may be prompted to issue more high-yield bonds to attract investors, hence leading to increased borrowing costs for the government.
In a report on Nigeria's macroeconomic and market report for July 2023 seen by Legit.ng, the financial company said that the apex bank’s action could also impact fiscal policies and possibly widen the budget deficit.
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This is on the back of earlier report that Nigeria’s debt ballooned to N49.8 trillion as DMO warns Tinubu against borrowing.
Legit.ng reported that Nigeria’s public debt has risen to N82 trillion from N77 trillion before the Central Bank of Nigeria (CBN) exchange rate unification, announced on Wednesday, June 14, 2023.
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Meanwhile, the World Bank recently cautioned Nigeria to cut back on its borrowing from the Central Bank of Nigeria if it wants to lessen the burden of inflation on the economy.
Surging money supply defies interest rate
Despite the Central Bank of Nigeria's (CBN) efforts to combat inflation and tighten liquidity by raising the benchmark interest rate, the report stated that Nigeria's money supply witnessed a substantial increase, reaching a record N64.3 trillion in June 2023.
It noted that the surge, amounting to a whopping N8.8 trillion in just one month, has raised concerns about the effectiveness of the Monetary Policy Committee's (MPC) interest rate hikes in curbing inflation.
Notably, the CBN's decision to hike the benchmark interest rate to 18.75% was driven by soaring inflation rates, reaching 22.79% in June 2023 – the highest since September 2005.
Despite successive interest rate increases over the last 14 months, inflation continued to surge, raising concerns about the effectiveness of such monetary policy measures.
The report points out that the rise in interest rates aimed to narrow the negative real rate of returns and attract foreign investments but has seemingly failed to address the inflationary pressures and the growing money supply.
Commenting on the possible implication for the country, the analysts said the escalating money supply poses challenges for the bond market.
They however noted that with a higher money supply, investors may become concerned about the potential erosion of their purchasing power, leading to increased demand for assets that may generate less negative yield.
Buhari’s Government Spent 85.37% of Its Revenue on Debt Servicing in February, Tinubu Inherits N77.8trn Debt
The Nigerian government spent over 85% of its revenue servicing debt in February 2023, according to Legit.ng earlier report.
The Central Bank of Nigeria said in its monthly economic report for February that the federal government had a retained revenue of N478.57 billion in February.
Source: Legit.ng
