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

Amr Hosny

No 2020/063, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; opportunity cost; non-resident holding; investor base; NTB rate; hot money; investors wait-and-see attitude; investor risk appetite; depreciation pressure; debt vulnerability; investor confidence; foreign holding; non-resident investor; investors risk aversion; Oil prices; Domestic debt; Exchange rates; Securities markets; Global; foreign holdings; local currency debt; portfolio flows; Nigeria (search for similar items in EconPapers)
Pages: 21
Date: 2020-05-22
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Journal Article: Nonresident holdings of domestic debt in Nigeria: Internal or external driven? (2020)
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