Understanding Nigeria’s debt strategy

Nigeria, like many countries around the world, is facing the economic challenges brought about by the COVID-19 pandemic. The country's debt strategy has come under the spotlight as President Buhari's $5.5 billion loan request was recently approved by Nigerian lawmakers. Steve Osho, Managing Director of Comercio Partners Capital, joined CNBC Africa to analyze Nigeria's approach to managing its debt amidst the ongoing crisis. The government's response to the pandemic has been a mix of decisive actions and strategic plans to mitigate the economic impact. Central Bank of Nigeria, in collaboration with the federal government, has implemented measures to support businesses and individuals affected by the crisis. These measures include adjusting loans to small and medium enterprises (SMEs), extending credit facilities, and ensuring strategic allocation of funds to sectors in need. Additionally, frontline medical personnel have been prioritized to combat the pandemic effectively. The decline in oil prices, a major revenue source for Nigeria, has added pressure to the country's economy. With 90% of Nigeria's revenue coming from oil exports, the drastic drop in oil prices has led to a significant revenue shortfall. In response to this challenge, the government has sought alternative ways to bridge the gap in the budget. The approved $5.5 billion loan is seen as a necessary step to address the revenue shortfall and stabilize the economy. Despite the economic uncertainties, Nigeria is exploring both local and external borrowing options to finance its budget deficit. The government aims to raise 2.19 trillion locally and 1.98 trillion externally. The prevailing lower interest rates in the capital markets have been advantageous for the government's borrowing plans. With interest rates decreasing and liquidity improving, Nigeria is in a favorable position to raise funds from the capital markets. The recent resurgence in global markets post the initial COVID-19 shock has also presented an opportunity for Nigeria to access international capital markets. As market activities gradually recover, there is a window of opportunity for Nigeria to tap into the markets for additional funding. Navigating Nigeria's debt strategy amidst the COVID-19 pandemic requires a careful balance of domestic and external borrowing, leveraging favorable market conditions, and responding to changing global economic dynamics. The government's proactive approach to managing its debt and revenue challenges will play a crucial role in steering the country towards economic stability and growth.