Non-Resident Holdings of Domestic Debt in Nigeria: Internal or External Driven?

May 22, 2020

Preview Citation

Format: Chicago

Amr Hosny. Non-Resident Holdings of Domestic Debt in Nigeria: Internal or External Driven?, (USA: International Monetary Fund, 2020) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Foreign holdings of domestic debt instruments in Nigeria have been increasing. Using data over 2007M1-2019M1, we show that, on average, global factors (global interest rates, oil prices) seem to carry more weight than domestic factors (treasury bills rate and domestic risk) in foreign portfolio invetsors’ decisions in Nigeria. Specifically, we show that foreign participation is, in the long run, positively correlated with oil prices and profitable rates of return on local-currency instruments, but negatively correlated with exchange rate depreciation pressures. In the short run, oil prices, opportunity cost of funds and perception of Nigeria-specific risks also play a role. These results highlight the volatile short-term nature of such flows and call for a package of policy reforms to attract longer term direct investments.

Subject: Domestic debt, Exchange rates, External debt, Financial markets, Foreign exchange, Oil prices, Prices, Public debt, Securities markets

Keywords: Debt vulnerability, Depreciation pressure, Domestic debt, Exchange rates, Foreign holding, Foreign holdings, Global, Hot money, Investor base, Investor confidence, Investor risk appetite, Investors risk aversion, Investors wait-and-see attitude, Local currency debt, Nigeria, Non-resident holding, Non-resident investor, NTB rate, Oil prices, Opportunity cost, Portfolio flows, Securities markets, WP

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/063
Stock No:

WPIEA2020063
ISBN:

9781513545370
ISSN:

1018-5941

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