The Central Bank of Nigeria (CBN) economic reforms have seen the economy attracted higher foreign portfolio investment inflows totaling $3.48 billion in six months of reforms, compared with $756.1 million in pre -reforms era.

The floatation of the naira and the clearing of over $7 billion FX backlog improved the country’s outlook with foreign investors as well as multilateral organizations, like the World Bank describing it as bold intervention to improve the economy’s sustainability in the long run.

CBN Governor, Olayemi Cardoso, disclosed that upon assuming office, his leadership prioritized rebuilding Nigeria’s economic buffers and strengthening resilience.

Inflation, which had surged to 27%, was one of the most pressing challenges, partly driven by excessive money supply growth. While the GDP growth had stagnated at a meagre 1.8% over the previous eight years, money supply expanded rapidly, averaging about 13% growth annually.

This imbalance not only fueled inflation but also contributed to a significant depreciation of the naira.

He explained that inflation creates uncertainty for households and businesses, acting as a silent tax by eroding purchasing power and driving up living costs.

The nation was also grappling with a fiscal crisis, marked by unsustainable deficit financing through the Central Bank’s Ways and Means advances, which had reached an unprecedented N22.7 trillion by 2023—equivalent to almost 11 per cent of the GDP.

In addition, quasi-fiscal interventions by the CBN, totaling over N10 trillion, undermined market confidence and weakened the effectiveness of its policy tools.

Against these odds, the CBN under Cardoso has brought new hopes in the management of the financial system and economy. The current macroeconomic stabilization efforts support Nigeria’s ability to attract foreign investors to its markets.

For instance, at the end of 2024, Nigeria leveraged its improved economic fundamentals to re-enter the Eurobond market, seeking to address its fiscal deficit. The move marked the country’s return to the international debt market in November after a two-year absence. In a dual-tranche Eurobond issuance, investor demand surged, with subscriptions exceeding $9 billion.

Despite the strong interest, the government chose to raise $2.2 billion. The issuance included $700 million in 6.5-year bonds set to mature in 2031, carrying a 9.625% coupon rate, and $1.5 billion in 10-year bonds with a coupon rate of 10.375%.

The high-interest rate environment also attracted higher foreign portfolio investment inflows, which totaled $3.48 billion in the first half of 2024 compared to $756.1 million during the same period in 2023.

Cardoso said: “The country was recently looking for $2.2 billion but we were offered $9 billion.”

This trend, he argues reflects growing investor confidence in the country’s ability to manage its external debt burden, a positive signal for Nigeria’s Eurobonds.

Although inflation remains a significant challenge, with consumer prices reaching 34.80% in December, CBN’s aggressive tightening, which raised the monetary policy rate (MPR) by a cumulative 875 basis points to 27.50% in 2024, was a move to anchor inflation expectations.

The high policy rate, which is expected to extend through 2025, albeit some rates cut within H1 of the year, could attract more foreign portfolio investors to the country’s fixed-income market, which offers juicy yields.

In the midst of these developments, Cardoso while speaking at the Monetary Policy Forum in Abuja recently with the theme; ‘Managing the Disinflation Process,’ said the country is at the verge of turning the corner.

He said: “Inflation targeting is a journey and disinflation is within reach.”

Cardoso said there is a heightened vigilance in the market and there is the need to “stay the course.”

Supporting the views of Cardoso on inflation, Deputy Governor, Financial System Stability at the CBN, Philip Ikeazor said: “People are expecting magic by calling for low interest rate because once inflation is high, forget output growth.”

In a report, “Nigeria’s Eurobond Outlook: Resilience Amid Global Uncertainty” Head of Investment Research – Global Macro Strategist, at Commercio Partners, Ifeanyi Ubah explained that the country’s Eurobond performance in 2025 will hinge on a delicate balance between domestic improvements and global monetary conditions.

“The country’s strengthening foreign reserves, improving fiscal revenues, and progress in structural reforms provide a robust foundation for managing its external debt. However, global headwinds, particularly a potentially hawkish Federal Reserve amid rising U.S. inflation, could weigh on market sentiment,” he said.

Ubah explained that if the Fed maintains restrictive rates, investor appetite for emerging market assets, including Nigeria’s Eurobonds, may weaken, pushing yields higher.

On the other hand, he added that continued reform momentum and effective management of external liquidity risks could offset some of these pressures, ensuring that Nigeria’s Eurobonds remain a relatively attractive option within the SSA space.

He said that for now, the outlook is cautiously optimistic, contingent on both domestic policy coherence and external economic developments.

“While there are uncertainties over the size of net reserves—owing to FX swaps with local banks—the Nigeria’s gross reserves provide an estimated nine months of imports, well above the median for peers in the ‘B’ rating category. The country’s ongoing security challenges, particularly in oil-producing regions, could undermine efforts to boost crude production, which could average 1.4mn barrels per day in 2025—still below pre-pandemic levels,” he stated.

Nigeria’s dollar-denominated Eurobonds enter 2025 on a cautiously optimistic note. While global macroeconomic dynamics exert significant influence, the country’s domestic reforms and improving fundamentals provide a supportive backdrop for debt sustainability and investor confidence.

Economy gets Positive Fitch Ratings

The Fitch Ratings last year revised upward Nigeria’s long-term Foreign Currency Issuer Default Rating (FCY-IDR) outlook to “Positive” from “Stable” previously. It also affirmed IDR at “B-“.

Fitch Ratings hinged the upward outlook review on ongoing fiscal and monetary policy reforms, notably, the reduction in fuel subsidy burden, the scale back on deficit financing through Ways & Means, the reduction in official vs parallel market FX rate distortion, forex backlog clearance, as well as the notable improvement in crude oil output in first quarter.

Analysts at Afrinvest West Africa Limited, the favourable review of Nigeria’s IDR would support local banks’ plan of raising foreign currency capital in the race to meet up with the recapitalisation benchmark set by the Central Bank of Nigeria (CBN) for different licensing categories.

Analysts from the research firm, called on the fiscal and monetary authorities to reignite their commitment and double down on efforts to boost crude oil output, temper inflation, and stabilise the exchange rate.

Nigeria’s move to issue Eurobond follows several successful issuances by other African nations including Benin Republic and Ivory Coast that signaled renewed investor appetite for the continent’s debt instruments.

Monetary Policy Committee Members speak

The Deputy Governor, Operation of the CBN, Bala Mohammed Bello listed key indicators that overtime kept domestic and domestic investors attracted to the domestic economy.

He said the external reserves position has grown remarkably to over $40 billion adding that
the upsurge in reserves levels strengthens the needed buffer to mitigate unforeseen risks and reinforces the importance of ongoing efforts at sustaining improved foreign exchange supply.

He maintained that the resilience of the domestic economy, bolstered by a strong financial system with robust soundness indicators, instill confidence in the economic structure.

“Major prudential ratios, such as capital adequacy, liquidity, and Non-Performing Loans ratios, were within prudential limits, reflecting proactive regulatory oversight and strong industry risk management practices.”

According to the MPC member , Significant credit was extended to growth-enhancing sectors such as agriculture, manufacturing and general commerce, as well as individuals and households which played a crucial role in stimulating economic activities and supporting output performance.

He disclosed that the results of recent stress tests showed that the bank’s solvency and liquidity ratios remained resilient in scenarios of potential severe macroeconomic shocks. “Continued vigilance is, however, required to ensure that the banking system remains strong and stable amid lingering risks,” he added.

Continuing, he said that notwithstanding, Nigeria’s Real Gross Domestic Product (GDP) has maintained a positive trajectory, with a growth rate of 3.46 per cent in the third quarter of 2024, compared with 3.19 and 2.54 per cent in the preceding and corresponding periods, respectively.

“This growth, driven by both the oil and non-oil sectors, with a notable contribution from the Services sector, is a testament to the resilience of our economy. The non-oil sector grew by 3.37 per cent in the third quarter, compared with 2.80 per cent in the second quarter, while the oil sector grew by 5.17 per cent (year-on-year), compared with 10.15 per cent in the preceding quarter,” he said.

Another MPC member, Aloysius Ordu, said CBN staff presentations show noteworthy green shoots since the era of tight money began.

“First, there has been a marked improvement in the current account balance. Q3 2024 data shows a surplus of US$6.29 billion vis-à-vis US$5.14 billion in Q2 2024; and the overall balance of payment position recorded a surplus of US$3.79 billion,” he said.

On his part, another member of MPC, Bandele Amoo, said Nigeria’s Balance of Payments (BOP) position remained stable to support our external sector stability.

The BOP provisionally recorded a surplus in the 3rd Quarter of 2024 driven by positive balances in the current account and net asset acquisition positions.

The overall account positively stood at US$3.79 billion as at Q3 of 2024. Meanwhile, portfolio inflows remain high, recording a net inflow US$0.59 billion as at November 2024.