Nigeria Records Highest Borrowing Costs In 5 Years

(VENTURES AFRICA) Nigeria’s Debt Management Office is set to offer 83.9 billion naira ($515 million) in debt, including 30 billion naira of 15.1 percent bonds due 2017 – the Oil-rich nation’s highest borrowing cost in five years.

This was made known in a statement posted on the Debt Management Office’s official website. According to the statement, the debt office is incurring the debts on concern of the current pace of inflation which is approaching the fastest in more than two years.

On Thursday, the office will offer debts and bonds that are due in 2017 to members of the public.

According to current prices on the Financial Markets Dealers Association website, yields on the existing 2017 notes had hit a record high of 15.71 percent on June 25.

In May, Nigeria’s inflation rate slowed to 12.7 percent from 12.9 percent in April; however, the rate is expected to peak at 14.5 percent in the third quarter of 2012. According to the Central Bank of Nigeria (CBN), this will be the highest inflation rate since April 2010.

The banking sector’s policy makers led by CBN Governor Lamido Sanusi have held the benchmark interest rate at 12 percent this year from a 5.75 percent point-raise in 2011, in order to curb the naira’s decline and to combat the rising inflation rate.

Analysts and strategists across the continent are concerned about Nigeria’s current economic status.

“Inflation risk remains the blemish,” Dumisani Ngwenya, a Johannesburg-based Africa strategist at Barclays Plc’s Absa Capital, said in e-mailed comments sent to Bloomberg. However, there isn’t need for panic because according to Ngwenya, the dip in price growth in May is probably temporary.

According to Tola Odukoya, an analyst at Dunn Loren Merrifield Ltd. in Nigeria business hub, Lagos, the key factor driving the yields up is the sustained pressure on the local currency as a result of foreign investors’ profit-taking and moving their funds out of the market.

“We expect the yields of all the bonds to come out higher than that of the previous auction,” he said.

The rise in inflation rate could be linked to recent economic policies that were implemented in Nigeria. One of such is the inflation resulting from the increase in the pump price of gasoline due to the partial withdrawal of fuel subsidies in January. This has led to an increase in the pump price of gas from 65 naira in January to 97 naira a litre (0.26 gallon).

The economy has also been hit by a worldwide oil price plunge. As a result of the plunge, Nigeria’s benchmark blend (Bonny Light crude) has dropped 28 percent from a March 13 peak of $128.47 per barrel to $92.50.

The naira, which was Africa’s best-performing currency against the dollar in the first five months of 2012, has also been affected. The currency is now down 0.2 percent, currently trading at 162.65 naira per Dollar in Lagos, Nigeria’s commercial capital.

In the same vein, Nigeria’s foreign reserves have recorded a deficit of $612 million to $37.1 billion as the apex bank has increased dollar sales at twice-weekly currency auctions, and directly to the market to defend the naira.

Nigeria is a nation of 150 million people and it depends on crude oil exports for more than 80 percent of government revenue and 95 percent of foreign currency income. According to the statistics office, crude oil accounts for 83 percent of Nigeria’s total exports in the fourth quarter.




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