Stronger dollar and election jitters could lift naira pressure and Nigeria’s borrowing costs, experts warn

A stronger US dollar and uncertainty ahead of Nigeria’s election season could put pressure on the naira and raise Nigeria’s borrowing costs, especially on dollar-denominated debt, financial experts have warned.

The experts spoke at the latest Drinks and Mics session hosted by Ugo Obi-Chukwu, founder and CEO of Nairametrics, while discussing the implications of the Democratic Party’s victory in the United States.

US yields and Eurobond risk

Arnold Dublin-Green, Chief Investment Officer at BGL Asset Management, said rising US Treasury yields, possible changes in interest rates and domestic political uncertainty could create a difficult environment for Nigeria’s external borrowing.

He said recent movements in US Treasury yields and market volatility could affect Nigeria’s borrowing costs if the Federal Reserve raises interest rates in December. He pointed to Eurobonds as a key area to watch.

'I’m seeing US Treasury yields go up. I’ve been seeing some volatilities in the past couple of days. But I think that if we get the rate hike in December, we have to now start looking at our dollar borrowing costs. I’m talking about Eurobonds. We have to start looking at the potential environment of a stronger dollar and a weakened naira coupled with the election season,' Dublin-Green said.

Naira and FX backdrop

The naira depreciated by 0.22% in the first week of November, closing at N1,349 per dollar on November 6, as foreign exchange turnover on the Nigerian Foreign Exchange Market remained subdued.

A stronger dollar could increase the naira cost of servicing Nigeria’s foreign currency obligations. Election-related uncertainty could add to pressure on the local currency.

Tariffs, oil and US policy

Muktar Muhammed, CEO of Finance with Muktar, said US tariffs could have a positive effect on Nigeria. He argued that the impact would depend on how many Nigerian products are directly affected.

'Tariffs will impact us positively. And again, you have to ask yourself how many of our products are really affected by tariffs?' Muhammed said.

Oluwapelumi Joseph, a finance professional, focused on oil prices and production. He said Nigeria’s budget benchmark of $64 per barrel provided room for revenue gains if prices remained higher.

Joseph said Nigeria’s crude oil production was around 1.8 million barrels per day. Sustained output within the range of 1.8 million to 2 million barrels per day would support the country’s oil revenue outlook, he added.

He also argued that oil prices were unlikely to fall to $50 per barrel and that interest rates had not declined sufficiently to trigger a major exit by foreign portfolio investors.

Yemi Akiolu, Managing Director and Chief Executive Officer of Aithnastone, suggested that the Democratic Party’s position on America’s role in supporting developing economies could influence the policy response. He said expectations that Democrats favoured a stronger US role in supporting developing economies could become an incentive for President Donald Trump to offer similar support.

US rate decision in focus

The Federal Reserve’s interest-rate decisions remain an important consideration for emerging markets, including Nigeria, because changes in US yields can influence global investment flows and the cost of dollar borrowing.

A US rate increase of 25 basis points could increase pressure on emerging-market currencies as investors reassess the relative returns on dollar-denominated assets.

For Nigeria, the combination of global interest-rate movements, exchange-rate pressures and the approaching election season could shape investor appetite for local assets and the cost of accessing international debt markets.