Domestic Macroeconomy
This week, we take a look at the recently updated Medium-Term Debt Management Strategy (MTDS) released by the Debt Management Office. The MTDS is a four-year plan that guides how the Federal Government aligns it’s expenditure plan with expected revenue flows to support fiscal viability. Importantly, it helps provide a guard rail on borrowings and public debt management, in line with international framework adopted across countries and recommendations from World Bank/IMF. This is done by balancing costs (interest and fees) with risks (refinancing, exchange-rate, and interest-rate) with the main objective of optimising FG’s debt portfolio for fiscal sustainability.
To start with, the new MTDS 2024–2027 was updated to replace the 2020–2023 plan and respond to Nigeria’s sharply deteriorating debt and macroeconomic conditions. Between 2019 and 2024, the country’s debt-to-GDP ratio more than doubled from 19.0% to 52.3%, driven by heavy new borrowings, the securitisation of ₦30.0tn in CBN ways & means and steep naira depreciation. Moreover, assumptions underpinning the 2024 budget such as the projected exchange rate of ₦800.0/$1.00 (which had already weakened to ₦1,535/$1.00 by December 2024) have become obsolete. Given these realities, the MTDS was recalibrated using the updated Medium-Term Expenditure Framework (MTEF) 2025–2027 and the 2025 budget to ensure that debt policy aligns more realistically with current fiscal and macroeconomic conditions.
Against this backdrop, the updated MTDS set new fiscal sustainability benchmarks by raising the debt-to-GDP ratio to 60.0% from 40.0% (Q1:2025 actual: 39.7%), and adjusted interest payments to 4.5% of GDP (Q1:2025 actual: 0.8%). Meanwhile sovereign guarantees limit was retained at a maximum limit of 5.0% of GDP (2024 actual: 2.1%). On debt composition, the MTDS shifted the mix from 70:30 domestic-to-external maximums to 55:45, increasing FX exposure limits while maintaining at least 75.0% of domestic borrowing in long-term instruments (already 82.0% as of December 2024).
Also, a safeguard was introduced on short-term debt by adding Debt maturing in 1 year as a percentage of GDP (capped at 5.0%) as a new indicator. The addition, unlike the earlier target which only limited short-term debt to a share of the total debt stock, ties risk directly to the size of the economy. The rationale is that even if short-term debt looks small relative to total debt (a target now set to 15.0% from 20.0%), it could still place a heavy repayment burden if it is large compared to national output. However, as of 2024, it stood at 6.95% of GDP, already above the new 5.0% ceiling, indicating that Nigeria faces elevated refinancing risks and will need to gradually realign its debt profile to meet this tighter benchmark.
Maturity Target
Average maturity target remained at a minimum of 10 years with actual at 11.05 years as of December 2024. Furthermore, in contrast to the old MTDS (2020–2023) which relied on a single target of keeping variable rate debt below 5.0% for interest rate risk, the new MTDS (2024–2027) expands interest rate risk management by setting a minimum average time to refixing to 10 years, restraining debt refixing within one year at 15.0% of total debt and limiting NT-Bills to 10.0% of the portfolio.
Noteworthy, foreign exchange (FX) risk, which was not explicitly tracked, leaving a gap in assessing exposure to currency-related vulnerabilities was introduced. The new MTDS (2024–2027) addresses this by introducing a dedicated FX risk category with two key limits: FX debt as a share of total debt is capped at 40.0% (51.8% as at end of December 2024), and short-term FX debt as a share of external reserves is capped at 10.0% (8.3% as at end of December 2024).
While the updated MTDS is well-framed and directionally correct in some respects like tracking FX exposure and gauging interest payment to GDP, the revision still raises critical questions. The increase in the debt ceiling seems driven less by sustainability concerns and more by the need to accommodate additional borrowing. With GDP around $251.0bn in 2024 (using 2024 average exchange rate of ₦1,484.99/$1.00) and an ambitious target of $1.0tn, raising the ceiling from 40.0% to 60.0% effectively expands fiscal space for new debt, even as revenues remain under pressure from oil price volatility and sub-2.0 mbpd output. Also, the higher external debt limit increases the sovereign balance sheet risks to FX-related shocks (already above breached at 47:53 as of Q1:2025).
We applaud the plan to stretch maturities and reduce rollover risk, but high inflation and volatile domestic rates mean new borrowing will likely still be expensive, raising interest-to-GDP even if the headline ratio looks “on target.” This makes the $1.0tn economy improbable as growth will be consumption-led and debt-financed rather than investment-driven. Looking ahead, we believe the government should prioritize reducing its debt burden and strengthening revenue mobilisation, rather than merely expanding borrowing capacity. Without meaningful improvements in revenue performance, raising borrowing limits may heighten fiscal vulnerabilities instead of fostering sustainable long-term growth.
Domestic Equities Market: Bears Hold Sway… ASI down 50bps w/w
For the third straight week, bears pervaded Lagos customs street, dragging the NGX-ASI lower by 50bps w/w to close at 140,295.49 points. Consequently, market capitalisation trimmed 0.5% w/w to ₦88.8tn while YTD return moderated to 36.3% from 37.0% in the prior week. Trading activity declined as average volume and value traded fell 33.0% and 20.5% respectively to 639.9m units and ₦17.1bn. The most actively traded stocks by volume were FCMB (363.8m units), CHAMPION (209.3m units) and ACCESSCORP (205.5m units), while GTCO (₦15.3bn), ARADEL (₦9.6bn), and ACCESSCORP (₦5.6bn) were the top traded by value.
Across our coverage sectors, performance was bearish as all six indices closed in the negative region. The Banking and Insurance indices topped the losers’ chart, down 1.2% and 1.0% w/w respectively, spurred by losses in ZENITHBANK (-5.7%), GTCO (-2.1%), MANSARD (-8.1%), and AIICO (-3.3%). Following suit, the Consumer and Industrial Goods indices fell 0.9% and 0.4% w/w respectively, due to price declines in CHAMPION (-8.0%), GUINNESS (-7.3%), WAPCO (-3.4%) and CUTIX (-1.4%). Similarly, the Oil & Gas and AFR-ICT indices lost 20bps and 1bp w/w respectively, due to sell-offs on ARADEL (-1.7%), OMATEK (-6.0%), and CWG (-4.3%).
Investor sentiment, as measured by market breadth, worsened to -0.4x (previously -0.2x) as 32 stocks gained, 57 stocks lost, and 57 closed flat. MCNICHOLS (+18.8%), NEM (+17.3%) and BERGER (+15.3%) were the top-performing stocks for the week, while NSLTECH (-22.7%), GUINEAINS (-19.8%) and LASACO (-13.3%) were the top underperforming stocks for the week. Next week, we anticipate a modest rebound on the bourse, driven by strategic cherry-picking following recent price corrections, alongside improved system liquidity from FAAC allocation disbursements.
Afrinvest
