Nigeria’s international dollar-denominated bonds fell on Wednesday, after the president’s spokesman said petrol prices did not need to rise more, and blamed foreign exchange shortages on “gross mismanagement” at the central bank.
The 2051 maturity dropped as much as 1.7 cents on the dollar to 68.894 cents, its lowest since June 2, before recovering to trade 0.57 cents lower.
President Bola Tinubu axed a popular but costly petrol subsidy after coming to power in late May and soon after devalued the naira currency, both of which were long demanded by investors, driving a rally in Nigeria’s overseas bonds that peaked at the beginning of August.
Nigeria, reliant on fuel imports, is still suffering dollar shortages and petrol retailers have called for further price increases due to the weakening of the exchange rate making fuel more expensive to import.
“The slowdown to the pace of reform in Nigeria, and the potential for even the reversal of some reforming steps already taken, in combination with data released by the central bank, has weighed on investor sentiment, causing a reversal of some of the outperformance of Nigerian eurobonds against its peers,” said Yvette Babb, an emerging market fixed income investor at William Blair.
The scrapping of the fuel subsidy saw petrol prices more than triple and pushed already double-digit inflation to an 18-year high in July, data showed on Tuesday.
Tinubu rejects further petrol price increases, his spokesman, Ajuri Ngelale, told reporters, adding that Nigeria did not need an “upward movement of pump price in order to accommodate the market-driven reality”.
The decision is disappointing for investors, Carlos de Sousa, an emerging market debt portfolio manager at Vontobel, told Reuters.
“President Tinubu hit the ground running since day one of his presidency in terms of progressing fast with reforms, and now it seems like further progress will be more gradual.”
The fuel subsidies had been widely criticised for eroding the government’s finances and ability to service debt, Ayodeji Dawodu of investment bank BancTrust said in an emailed note.
“The presidency may be bowing down to pressures from labour unions and manufacturers,” he added.
Tinubu launched an investigation into the central bank under suspended and detained governor Godwin Emefiele after criticising its policies at his inauguration in May, especially steps to prop up the naira.
Authorities are now seeking ways to stem the fall of the currency, which has hit record lows on the black market.
Acting central bank governor Folashodun Shonubi met Tinubu on Monday to discuss ways to improve liquidity after the bank revealed it had a $19-billion derivatives commitment as of 2022.