Stronger dollar, election uncertainty could pressure naira, raise Nigeria’s borrowing costs – Experts

A stronger US dollar and uncertainty ahead of Nigeria’s election season could put pressure on the naira and increase the country’s borrowing costs, particularly on its dollar-denominated debt, financial experts have warned.

The experts shared their views during the latest episode of Drinks and Mics hosted by Nairametrics Founder/CEO, Ugo Obi-Chukwu, while discussing the implications of the Democratic Party’s victory in the United States.

Arnold Dublin-Green, Chief Investment Officer at BGL Asset Management, said rising US Treasury yields, possible changes in interest rates and domestic political uncertainty could create a challenging environment for Nigeria’s external borrowing.

Stronger dollar raises Eurobond concerns

Dublin-Green said recent movements in US Treasury yields and market volatility could have implications for Nigeria’s borrowing costs if the Federal Reserve raises interest rates in December.

• “I’m seeing US Treasury yields go up. I’ve been seeing some volatilities in the past couple of days. But I think that if we get the rate hike in December, we have to now start looking at our dollar borrowing costs. I’m talking about Eurobonds. We have to start looking at the potential environment of a stronger dollar and a weakened naira coupled with the election season,” he said.

His comments point to the potential effect of higher US interest rates on emerging markets, where investors may reassess the returns available from riskier assets compared with dollar-denominated investments.

A stronger dollar could also increase the naira cost of servicing Nigeria’s foreign currency obligations, while election-related uncertainty could add to pressure on the local currency.

Nairametrics earlier reported that the naira depreciated by 0.22% in the first week of November, closing at N1,349 per dollar on November 6, as foreign exchange turnover on the Nigerian Foreign Exchange Market remained subdued.

Experts assess tariff and oil risks

Other contributors offered different perspectives on the possible implications of US policy changes and developments in the global economy.

Muktar Muhammed, CEO of Finance with Muktar, said US tariffs could have a positive effect on Nigeria, arguing that the impact would depend on how many Nigerian products were directly affected.

• “Tariffs will impact us positively. And again, you have to ask yourself how many of our products are really affected by tariffs?” he said.

Oluwapelumi Joseph, a finance professional, focused on oil prices and production, noting that Nigeria’s budget benchmark of $64 per barrel provided room for revenue gains if prices remained higher.

He said Nigeria’s crude oil production was around 1.8 million barrels per day, adding that sustained output within the range of 1.8 million to 2 million barrels per day would support the country’s oil revenue outlook.

Joseph also argued that oil prices were unlikely to fall to $50 per barrel and that interest rates had not declined sufficiently to trigger a major exit by foreign portfolio investors.

Yemi Akiolu, Managing Director and Chief Executive Officer of Aithnastone, suggested that the Democratic Party’s position on America’s role in supporting developing economies could influence the policy response.

He said expectations that Democrats favoured a stronger US role in supporting developing economies could become an incentive for President Donald Trump to offer similar support.

US rate decision remains in focus

The Federal Reserve’s interest-rate decisions remain an important consideration for emerging markets, including Nigeria, because changes in US yields can influence global investment flows and the cost of dollar borrowing.

Nairametrics had earlier reported that a US rate increase of 25 basis points could increase pressure on emerging-market currencies as investors reassess the relative returns on dollar-denominated assets.

For Nigeria, the combination of global interest-rate movements, exchange-rate pressures and the approaching election season could shape investor appetite for local assets and the cost of accessing international debt markets.