Comercio: Nigeria unlikely to tap Eurobond market in 2024

Comercio Partners recently released its 2024 macroeconomic outlook report, shedding light on Nigeria's domestic borrowings, exchange rate dynamics, and inflation projections. The report suggests that Nigeria's domestic borrowings may exceed estimates due to reduced use of the ways and means window. Furthermore, it anticipates that the government is unlikely to tap into the Eurobond market in 2024. Ifeanyi Ubah, an Investment Research Associate at Comercio Partners, provided an in-depth analysis of the report during a CNBC Africa interview. As Ifeanyi delved into the macroeconomic heat map of Nigeria, he highlighted the fluctuations between the parallel and official forex markets. Following the unification of the exchange rate, there was a temporary convergence, which later widened. The Central Bank of Nigeria (CBN) issued circulars to align the rates once more, thereby reducing the disparity. Despite a minor divergence currently, the CBN aims to instill confidence in the currency by allowing market forces to influence exchange rates. Discussing the Naira's trajectory, particularly at the NAFEM window, where it traded at 1,490 Naira to the US dollar, Ifeanyi noted the CBN's proactive steps to stabilize the currency. While the future exchange rate remains uncertain, the I&E window is reflecting market dynamics more accurately, with reduced CBN interventions. In the fixed income market, a hawkish stance prevails despite earlier expectations of a rate cut. With inflation targeting at 21.4 percent, the focus on food inflation underscores broader economic challenges beyond monetary policy interventions. Ifeanyi stressed the need for a comprehensive approach to address inflation, considering underlying factors such as transportation and insecurity. Addressing investor behavior in response to market conditions, Ifeanyi discussed the attractiveness of Nigeria's higher yield environment. The government's efforts to attract foreign direct investments and portfolio investments aim to enhance stability and strengthen the economy. The recent developments in the oil and gas sector, exemplified by the operational Dangote refinery, offer potential for reducing import-related dollar losses and bolstering foreign reserves. Expanding the discussion to Ghana and other sub-Saharan markets, Ifeanyi highlighted Ghana's challenges amidst ongoing reforms and political uncertainty. While inflation upticks and rate cuts pose risks, investor sentiment remains cautiously optimistic pending the outcomes of restructuring efforts and IMF collaboration. Ghana's potential access to the Eurobond market hinges on restoring investor confidence post-reforms. With regard to Ghana's economic outlook, observers are monitoring inflation trends and policy shifts, including cabinet reshuffles and key appointments. The delicate balance between stabilizing the economy and attracting foreign investors underscores the nuanced landscape of Sub-Saharan Africa's financial markets. In conclusion, the macroeconomic outlook for Nigeria and neighboring economies reflects a blend of challenges and opportunities. Managing exchange rate fluctuations, inflation pressures, and investor sentiments require a strategic and multi-faceted approach to sustain long-term economic stability and growth.