Nigeria’s dollar bonds and equities rallied after President Bola Tinubu said he’ll end the nation’s $10 billion fuel-subsidy program and announced plans to adopt a uniform exchange rate.
(Bloomberg) — Nigeria’s dollar bonds and equities rallied after President Bola Tinubu said he’ll end the nation’s $10 billion fuel-subsidy program and announced plans to adopt a uniform exchange rate.
Debt due in 2047 jumped 3.8% to 67.130 cents on the dollar by 12:30 p.m. in London. Bonds due in 2049 gained 3.4% and those maturing in 2051 advanced 4.03%. The NGX 50 Index, which comprises the nation’s biggest companies, surged 3.5% in Lagos, the most since November 2020.
The new president said in his inauguration speech on Monday that the savings from the costly subsidy will be used to fund education and health projects. The government will also discontinue a multiple-currency regime that created a 60% spread between a partially controlled official exchange rate and a parallel market rate, in a bid to boost investment, Tinubu said.
“The speech is likely to be well-received by investors,” Tunde Abidoye and Tobi Ehinmosan, analysts at FBNQuest in Lagos, said in an emailed note. Removal of the petrol subsidy is “necessary to create much-needed fiscal space” to grow the economy, while the harmonization of the nation’s multiple exchange rates will help close the arbitrage gap between the official and parallel market exchange rates, they said.
Africa’s biggest economy has a tightly controlled official rate that has little liquidity; and an uncontrolled, unauthorized parallel market, where most residents source their dollar needs. The spread between the official and the black market rate discourages foreign investor inflows. The naira traded at 464.79 naira per dollar on the official market on Tuesday, compared with 765 dollar on the unauthorized market in Lagos.
The 71-year-old leader also called on the Central Bank of Nigeria to lower interest rates to help boost economic output, as the government targets an annual growth rate of 6%.
–With assistance from Colleen Goko.
(Updates to add stocks performance from first paragraph.)
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