Rising fiscal challenges could push Nigeria’s Debt Management Office (DMO) toward more aggressive domestic borrowing, according to a recent fixed-income market report by CardinalStone Limited.
The investment firm sounded the alarm amid growing signs of tightening system liquidity, shifting investor sentiment, and the federal government’s upward revision of its 2025 spending plan.
CardinalStone noted that the naira-denominated fixed-income market, which experienced yield moderation in January and February, reversed course in March. Average yields rose by 7 basis points, driven by mounting fiscal concerns, tighter financial conditions, and a recalibration of the DMO’s debt issuance strategy.
“Fiscal concerns—fueled by unstable oil prices and subdued crude output—are likely to compel the DMO to intensify borrowing efforts,” the analysts stated, adding that this shift could prompt some investors to exit naira assets in search of more stable alternatives.
In March, the DMO deviated from its earlier plan of issuing ₦1.90 trillion in Treasury Bills, which would have resulted in a net repayment of ₦742.10 billion. Instead, it ramped up issuance to ₦2.82 trillion, translating to a net borrowing of ₦179.73 billion. The number of auctions was also increased, reflecting a more urgent financing need in response to the revised 2025 federal budget—now set at ₦54.9 trillion, up from ₦49.7 trillion.
CardinalStone said the DMO likely felt compelled to fully roll over maturing instruments and raise stop rates to retain the interest of foreign portfolio investors (FPIs), who have grown cautious due to global risk-off sentiment and volatility in oil markets.
Although yields initially eased in early March, continuing a trend from earlier months, the situation reversed as liquidity in the banking sector dried up. Commercial banks increasingly tapped the Central Bank of Nigeria’s discount window, with net borrowings averaging ₦570 billion—signaling significant liquidity strain.
These developments have heightened concerns over the sustainability of the government’s fiscal assumptions, particularly amid global economic uncertainty and Nigeria’s ongoing reliance on oil revenue.
The Finance Minister has since confirmed that budget assumptions are under review to reflect current macroeconomic realities.
CardinalStone analysts concluded that ongoing fiscal strain and unpredictable oil earnings are likely to push the DMO toward larger and more frequent debt issuances. This pressure to sustain investor confidence—especially from FPIs—may also lead to further interest rate hikes and shifts in auction strategies.
With rising expenditure, tight liquidity, and a cautious investment landscape, market watchers say the DMO’s next moves will be crucial in shaping yield trajectories and capital market dynamics in the months ahead.
