The International Monetary Fund (IMF) has expressed concerns over the Nigerian government’s strategy to issue domestic dollar-denominated bonds, according to the recently published IMF staff country report for Nigeria.
The Fund warns that this move could exacerbate pressures on the naira and elevate the costs associated with naira securities.
The report noted the federal government’s plan to revise its Medium-Term Debt Strategy, developed in collaboration with the IMF and World Bank Capacity Development (CD).
The revision aims to bolster the issuance of medium-term securities and Eurobonds while maximizing multilateral and bilateral support.
The IMF also noted that the federal government’s plan to introduce domestic foreign exchange securities, intended to enhance dollar liquidity in the official market, could fragment the market.
The IMF advised the Central Bank of Nigeria (CBN) to develop a foreign exchange intervention framework to mitigate excessive volatility in the naira, given the limited depth of Nigeria’s foreign exchange market.
The report stated: “Domestic issuance of FX denominated government securities is likely to lead to market fragmentation and weaken the transmission mechanism. The CBN should develop an FXI framework to smooth excess naira volatility, given the shallow nature of the FX market.”
