April 20, 2020/Coronation Report

The Federal Government of Nigeria (FGN) is proposing a revised budget for 2020 which is designed to generate a deficit in the region of N5.2 trillion (US$13.5 billion), up from the previous estimate of N2.2 trillion. Normally one would expect the prospect of rising government debt to spur interest rate rises. But there appears to be a delayed reaction.

First, the government continues to believe that it will finance the bulk of the deficit in foreign currencies; second, it believes that it will crowd out private-sector lending if it issues a high level of T-bill and Naira-denominated bonds. Meanwhile, the liquidity of the banking system is fair. So we do not expect significant interest rate rises this quarter, though things could change a lot later this year.

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