Standard Chartered Bank Explains The Reasons Behind Nigeria Need to Borrow N21 Trillion in 2024

To avert financial insolvency, the Federal Government of Nigeria is projected to borrow a significant sum of N21 trillion in 2024, as revealed by Standard Chartered Bank.

This decision is in response to the government’s ambitious plan to allocate N28.7 trillion in its 2024 budget.

Ayodeji Adelagun, the head of financial markets at Standard Chartered Bank Nigeria Limited, attributes the need for borrowing such a substantial amount to the inflation rate surging to 28.9 percent.

In his words, he said,

“In 2024, N21 trillion must be borrowed. If you have to borrow that amount of money and inflation is at 28.9 percent, it is only logical and it is just what must happen that rates must rise, at least to make sure that your return is positive”.

Analysts believe that the impending borrowing is anticipated to have extensive implications, affecting households, businesses, and the broader economy.

They emphasize that the success of this borrowing hinges on prudent utilization. If deployed effectively in productive sectors, it has the potential to stimulate economic growth, foster job creation, and bolster businesses.

However, mismanagement could result in inflation, increased debt burdens, and negative outcomes for households and businesses. Amid these financial manoeuvres, confidence is slowly building in both local and global markets.

According to him, the current policies are aimed at stabilising the exchange rate, with the Central Bank of Nigeria (CBN) actively managing liquidity to reduce the volume of cash chasing foreign exchange (FX).

Ayodeji further highlighted that the trajectory of these policies depends on achieving stability in FX liquidity. Initiatives like the Afreximbank/NNPC securitization, World Bank support, and potential Eurobond issuance are expected to enhance liquidity. He mentioned that foreign portfolio investors (FPIs) are closely monitoring these developments, expressing concerns about ease of entry and exit.

He noted that recent efforts by FMDQ to publish market prices reflecting parallel markets were viewed positively, potentially attracting FPIs. Although the adjustment may not be immediate, it lays the groundwork for increased investor interest.

Considering the 28.9 percent inflation rate, he stated that monetary policy was leaning towards inflation targeting. This implies an anticipated increase in interest rates, with interbank, OMO, and treasury bills rates hovering around 14 percent. The government aims to attract FPIs by offering competitive rates while simultaneously addressing inflationary pressures associated with the exchange rate.