Nigeria faces politicking, mounting debt in 2020

Nigerian President Muhammadu Buhari is due to complete his second and final four-year term in 2023, and the battle over who will succeed him is already heating up, placing pressure on an already strained economy.

Buhari has shied away from endorsing his deputy, Yemi Osinbajo, for the position, twice slighting him by opting not to transfer power to him while traveling abroad. That may diminish his chances of securing the top job.

“The year 2020 will be a year of limited governance and more focus on politicking as various groups within the ruling APC will try and position themselves in anticipation of the 2023 elections,” said Cheta Nwanze, head of research at Lagos-based SBM Intelligence.

The wrangling is but one of the challenges confronting Africa’s largest oil producer. Below are some of the other key issues:

The government will need to fund its 10.6 trillion naira (R414 billion) spending plans at a time when economic growth is faltering. Revenue has fallen short of target by at least 45% every year since 2015 and shortfalls have been funded through increased borrowing. In its latest credit report on the country, Moody’s Investors Service warned that the state is likely to take on even more debt and the budget deficit is set to widen further.

Inflation reached a 19-month high in November and increases in the minimum wage and power tariffs are adding to price pressures. The west African country has also shut its land borders since August to stem smuggling of items like rice and frozen products, causing food prices to rise by 15% from a year earlier.

The risk that the naira will have to be devalued is mounting. The central bank has sought to maintain high yields as an incentive to foreigners to invest in debt denominated in the local currency, attracting large dollar inflows in the process.

While the naira remained relatively stable in 2019, the country’s external reserves are down to a year-low of $38 billion. Yields on naira-denominated debt dropped to an average of 13% at the end of last year, from a peak of 18% in 2017, diminishing their attractiveness to fund managers who are concerned about a possible currency weakness. – Bloomberg