IMF Raises Concerns Over Nigeria’s Plan to Issue Domestic Dollar-Denominated Bonds

International Monetary Fund Warns of Potential Risks to Naira and Securities Costs

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The International Monetary Fund (IMF) has voiced apprehensions regarding the Nigerian government’s proposed strategy to issue domestic dollar-denominated bonds, as per the recently released IMF staff country report for Nigeria.

In the report, the Fund cautioned that such a move could exacerbate pressures on the naira and increase the costs associated with naira securities, raising concerns about potential economic repercussions.

FG Revises Medium-Term Debt Strategy

The IMF report highlighted the federal government’s intention to revise its Medium-Term Debt Strategy, developed in collaboration with the IMF and World Bank Capacity Development (CD). The objective of this revision is to strengthen the issuance of medium-term securities and Eurobonds while maximizing multilateral and bilateral support.

According to the report, the government aims to address the impact of monetary tightening and elevated external financing costs on interest expenditures. The planned updates to the debt strategy are expected to increase the issuance of medium-term securities and Eurobonds, while also leveraging multilateral and bilateral assistance.

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Risk of Market Fragmentation

Expressing further concerns, the IMF underscored the potential risk of market fragmentation posed by the federal government’s proposal to introduce domestic foreign exchange securities. This initiative, aimed at enhancing dollar liquidity in the official market, could result in market fragmentation and elevate the cost of naira securities, in addition to exerting pressure on the naira’s value.

The IMF advised the Central Bank of Nigeria (CBN) to develop a foreign exchange intervention framework to address excessive volatility in the naira, given the limited depth of Nigeria’s foreign exchange market. Such a framework, the IMF suggested, would help mitigate the potential adverse effects of introducing FX-denominated government securities domestically.

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The report emphasized the importance of careful consideration and strategic planning in implementing policies related to debt management and foreign exchange interventions to ensure financial stability and mitigate risks to the economy.

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This Post: IMF Raises Concerns Over Nigeria’s Plan to Issue Domestic Dollar-Denominated Bonds was approved and published by Ancity Media Editor and may not be republished elsewhere without prior written permission from the Editor.


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