E-Financial
Mixed Oil Markets and Q2 Slowdown Signal Economic Warnings to Nigeria
By Lukman Otunuga, Senior Research Analyst at FXTM,
Another recent escalation in the trade dispute between the US and China has punished crude Oil prices and set off warning signals for Oil-producing countries like Nigeria.
At the same time, Nigeria’s GDP slowed down to 1.94 percent in the second quarter from 2.1 percent in the first quarter, following the trend seen in several economies such as Germany and the UK.
It is becoming quite clear that as long as oil dependence remains one of Nigeria’s biggest risks, this will continue weighing heavily on the economy for the rest of 2019. While the GDP data should nudge the Central Bank of Nigeria (CBN) to cut interest rates for the second time this year in September in an effort to stimulate growth, this is a temporary fix to a bigger problem
What trade disputes mean for Nigeria’s economy
Persistent trade disputes between the world’s two largest economies is set to fuel fears over a global slowdown or even recession. Oil prices declined on the basis that a decelerating global growth may result in lower demand for the commodity Nigeria relies on for 90% of its export earnings.
In the context of a trade dispute, tariffs are like bombs exploding on trading relationships, supply deals and eventually on company profits.
Trade tensions also remain a direct threat to Nigeria’s economy. The risk factors are escalating along with the probability that the world may see an economic slowdown in the short-to-medium term.
Under the current circumstances, there are three main challenges Nigeria must navigate. They are China’s slowdown, lower oil prices, and the need for fast and adaptive monetary policy to handle local and external shocks.
Will China impact Nigeria’s growth prospects?
China’s growth slowed to 6.2% in the second quarter, its weakest expansion in three decades.
Most recently, China’s backing in the form of loans reached $16 billion and its vested interest is seen as a key support for the current production level of 1.85 million barrels per day.
However, Nigeria aims to reach three million barrels per day and needs more investment from China, which may prove to be more difficult going forward if China’s economy continues to decline.
The high level of debt to China is also proving to be a weight on fiscal revenues because Nigeria spent 50% of its 2018 government revenues on debt repayment.
Indeed, the IMF has urged Nigeria to curb its large appetite for Chinese loans as the country struggles with a €70 billion debt burden. That’s up from €62 billion in 2017, representing a year-on-year rise of 12.25 percent.
Lower oil prices remain a threat to Nigeria’s recovery
The prospect of high debt levels to China amid lower oil prices is something that must not be overlooked.
At the time of writing, Oil benchmarks come under continuous pressure from demand-side concerns, including recession fears stemming from trade disputes.
The money from Oil sales is the lifeblood of the Nigerian economy. In the worst-case scenario, if Oil prices start drifting lower there could be unwelcome consequences such as even slower GDP growth, job losses, sovereign debt defaults, less money in the fiscal budget for development, and constrained consumer spending.
Reduced crude Oil sales would affect government revenues and reserves, meaning the capacity to fund projects will be weakened. Stock markets together with investor sentiment domestically and externally would be impacted and possibly even trigger capital outflows.
Can Monetary policy handle downside shocks?
One would have expected economic momentum to pick up from Q1 after CBN cut interest rates in March and forced lenders to dish out more credit in a bid to boost growth.
While lower rates have the potential to keep the economy running, the answer to Nigeria’s woes can be found in diversification. The level of progress the nation has made in breaking away from the shackles of oil reliance remains a question for many with even the International Monetary Fund urging the nation to diversify revenues.
Another concern is friction over a recent UK court decision allowing a natural gas company to take over nine billion USD worth of Nigerian sovereign assets in London. The government has refused to accept the ruling and plans to appeal but the CBN may still need to step in to defend the Naira.
There is still some light at the end of the tunnel for the Nigerian economy if the right steps are taking in breaking away from oil reliance to other sustainable sources of economic growth. However, if Oil prices continue to send warning signals to Nigeria’s economic policy makers by trading sideways or declining, fiscal measures combined with monetary policy easing measures may become urgently needed to accelerate economic diversification.
Debt Management Office (DMO) said the federal government spent N3.14 trillion on servicing its domestic debt in the first quarter of 2026.
The office disclosed the data in its latest domestic debt service report for Q1 2026.
The figure comprises N2.97 trillion in interest payments and N169.68 billion in principal repayments.
The agency said in January, the government spent N741.82 billion on domestic debt service, while the figure rose to N967.67 billion in February.
Debt service increased further to N1.43 trillion in March, bringing the total for the quarter to N3.14 trillion.
The March figure was 47.7 percent higher than the N967.67 billion recorded in February and 92.7 percent above the N741.82 billion spent in January.
Also, the debt office said interest payments accounted for about 94.6 percent of total domestic debt service during the quarter.
The DMO said treasury bills accounted for the largest share of interest payments at N1 trillion, while interest on federal government bonds stood at N1.96 trillion.
The agency said the government also paid N4.24 billion in interest on FGN savings bonds during the period.
The DMO said the principal component of the debt service comprised N169.68 billion in repayments on local-denominated promissory notes.
Overall, the government’s domestic debt service rose sharply through the quarter, with March accounting for almost half of the N3.14 trillion spent between January and March.
Nigeria’s public debt increased by 0.01 percent to N159.35 trillion in the Q1 of 2026.
Interswitch Group, an integrated digital payments and commerce company, together with global banking software provider, Temenos have reassured the Central Bank of Nigeria (CBN) of their commitment to advancing the modernisation of Nigeria’s financial services sector.
Interswitch and Temenos had earlier in June announced a strategic partnership across Africa which would see Interswitch leverage Temenos solutions – across core banking, digital banking, payments, wealth management and financial crime mitigation – to provide cloud-hosted and on-premises managed services to banks and financial institutions across Africa.
This will enable institutions to progressively transform their banking platform and evolve to more customer-centric business models. The service will initially support key African markets including Nigeria, Ghana, Côte d’Ivoire, Kenya and others.
The recent regulatory visit to CBN headquarters in Abuja, was led by the Founder and Group Chief Executive Officer of Interswitch, Mitchell Elegbe, and Managing Director for the Middle East and Africa (MEA) at Temenos, Santhosh Rao, as part of the ongoing efforts by both organisations to deepen collaboration with Central Banks across the African region on the future of digital banking infrastructure across Nigeria and key African markets.
Discussions centred on the strategic partnership between Interswitch and Temenos, and how it will enable Nigerian financial institutions to progressively modernise their core banking platforms and transition to more customer-centric business models.
The two organisations also explored opportunities to work with the CBN in charting new frontiers in Central Bank Digital Currency (CBDC) innovation, leveraging resilient financial networks and decentralised application platforms to support the issuance and management of CBDCs.
Commenting on the visit, Elegbesaid: “Our partnership as Interswitch with Temenos and our continued engagement with the Central Bank of Nigeria reflect a shared commitment to building banking infrastructure that is resilient, inclusive, and ready for the next phase of Africa’s financial evolution.
We are proud to be at the table as these conversations shape the future of digital banking technology and innovation across key Africa markets…”
The Bank of Industry, through BOI Financing SPV Plc, has opened subscriptions for its inaugural Series 1 Fixed Rate Bond worth up to N250bn under its $1bn multi-currency instruments programme, seeking to raise long-term capital to finance businesses across Nigeria’s priority sectors.
The offer, which opened on 5 August and closes on 11 August, is being arranged by Chapel Hill Denham as the lead issuing house. The five-year bond is priced within a yield range of 17.35 per cent to 17.50 per cent and will be listed on the FMDQ Securities Exchange.
According to the offer document, proceeds from the issuance will be deployed to finance eligible businesses and projects across sectors, including agriculture and food processing, healthcare, engineering and technology, renewable energy, petrochemicals, oil and gas, creative industries and solid minerals, in line with BOI’s development finance mandate.
The lender said the financing is expected to improve access to medium and long-term funding for Nigerian enterprises, expand productive capacity, create and preserve jobs, deepen local value addition, support import substitution, boost exports and strengthen domestic value chains.
BOI, Nigeria’s foremost development finance institution, said it has provided funding to more than one million businesses across the country and disbursed over N1.27tn between 2023 and 2025. The institution operates across 34 states and the Federal Capital Territory and is jointly owned by the Ministry of Finance Incorporated and the Central Bank of Nigeria.
The bank also highlighted its financial performance, reporting a 36 per cent compound annual growth rate in gross earnings between 2021 and 2025.
Interest income rose 64 per cent to N884bn in 2025 from N538bn in the previous year, while its capital adequacy ratio stood at 39 per cent, nearly four times the regulatory minimum of 10 per cent. Its non-performing loan ratio was 1.7 per cent, below the CBN’s prudential limit of five per cent.
The bond has been assigned AAA ratings by Agusto & Co. and Intelligence Africa, reflecting the issuer’s strong capitalization, profitability, liquidity and ownership structure.
The issuance is open to institutional and qualified investors with a minimum subscription of N5m and additional investments in multiples of N1m. Interest will be paid semi-annually at a fixed rate, while principal repayment will begin in the third year through equal semi-annual amortised instalments until maturity in 2031.
The bond is also exempt from tax, making it an attractive investment option for investors seeking stable returns amid expectations of declining interest rates.
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