Economy
S&P Says Nigeria’s External Debt Moderate, Affirms Ratings
By Dipo Olowookere
Despite some local key stakeholders in the Nigerian economy raising alarm on the rate of the countrys foreign debts, a renowned global rating agency, Standard and Poors (S&P Global Ratings), has said there is no cause for alarm.
In a statement issued last Friday, S&P said though Nigeria’s economic performance remains weak, its external debt is moderate.
However, the agency said fiscal consolidation would be key in the period ahead as President Muhammadu Buhari remains in office for another four year, noting that this should give him administration another opportunity to strengthen economic policy framework and consolidate public finances.
Consequently, S&P announced that it is affirming its ‘B/B’ sovereign credit ratings and ‘ngA/ngA-1’ Nigeria national scale ratings on Nigeria, with a stable outlook. It also affirmed the long- and short-term Nigeria national scale ratings at ‘ngA/ngA-1’.
It was stressed that the stable outlook balances the risks associated with Nigeria’s still-weak economy against its moderate external debt and external buffers.
However, S&P said it may lower the ratings if Nigeria’s international reserves decline markedly, with the external debt rising much faster than currently expected.
“The ratings remain constrained, in our view, by the country’s low economic wealth, weak institutional capacity, and lower real GDP per capita trend growth rates than peers at similar development levels,” the statement obtained by Business Post said.
The rating firm said the Africa’s largest economy is growing more slowly than that of peers that have similar wealth levels, with a relative political stability, having experienced uninterrupted democratic transitions.
“However, we regard its institutions as weak and policy predictability as low. Fiscal budgets are frequently passed well after the year has begun, which impedes the government’s responsiveness to economic challenges,” it noted.
S&P pointed out the inability of the largely centralized federal government to redistribute wealth and spread power, to some extent, raising concerns on the security risks from Boko Haram in the northeast and the sporadic attacks on oil pipelines in the Niger Delta region of the country.
The rating agency noted that GDP per capita has been negative and debt-servicing costs absorb at least 30 percent of the country’s fiscal revenues, which constrains its fiscal flexibility.
Nigeria is a sizable producer of hydrocarbons. The oil sector’s direct share of nominal GDP is officially estimated at about 10%, but oil and gas account for over 90% of exports and at least half of fiscal revenues.
Economic data released by Nigeria’s National Bureau of Statistics show that Nigeria’s economy grew by 1.9% during 2018, based on improving performance in non-oil sectors as well as rising oil prices.
Agriculture, manufacturing, and services (which comprise the transport, information, communication, and technology sectors) have helped the economy grow faster in 2018 than the 1% it achieved in 2017.
“In our view, the increase in the availability of foreign currency and the flexible exchange rate have helped the non-oil sector grow.
“That said, average oil production is close to 2 million barrels per day and we forecast that oil prices will decline over 2019 and 2020.
“Low oil prices are likely to present fiscal pressures and limit growth, stimulating government expenditure.
“In the medium term, we expect improvements in the non-oil sector to support our forecast of economic growth rising to at least 2% in real terms.
“However, when we use 10-year weighted-average growth rates to estimate real per capita GDP growth, we calculate that the real economy is shrinking by 0.7% a year, well below the economic performance of peers that have similar wealth levels,” the statement said.
It was further disclosed that the nation’s net external debt is likely to increase over 2019-2022 if fiscal financing remains externally funded and external buffers stay at current levels, saying that after the elections, Nigeria could consolidate its fiscal position if it increases non-oil revenues while moderating capital spending.
Although oil revenues support the economy when prices are high, they expose Nigeria to significant volatility in terms of trade and government revenues.
Consequently, Nigeria’s trade balance is significantly affected by changes in the price of oil. Nigeria also consistently runs substantial deficits on the service and income balances, the rating company stated.
It stressed that the most consistently supportive feature of Nigeria’s current account is the surplus on net transfers, largely based on diaspora remittances by Nigerians living abroad.
In 2018, oil prices increased by close to 30%, boosting Nigeria’s export revenues. However, imports of goods and services surged at the same time.
“We estimate that the current account surplus in 2018 may be only 2% of GDP; in 2017, when oil prices were lower and imports were compressed, it reached 3% of GDP.
“Over 2019-2022, we assume that oil prices will decline, which will reduce export revenues. We also expect imports to moderate, albeit more slowly.
“Our overall forecast of the current account is a near balance, averaging -0.4% over 2019-2022. We now estimate gross external financing needs will average close to 100% of current account receipts (CARs) plus usable reserves during 2019-2022,” it said.
According to S&P, government is likely to cover its external financing needs through a combination of concessional credit lines and the international capital markets.
As part of exchanging expensive domestic debt for cheaper foreign currency debt and general external financing needs, the government last year issued Eurobonds worth about $6 billion. The impact of rising net external debt in 2018 was moderated by improving foreign exchange reserves at the Central Bank of Nigeria (CBN).
“In 2019, we expect Nigeria’s government to issue further Eurobonds before moderating issuance levels in 2020-2022. We assume central bank reserves will remain at the current levels. The government drew down some of its savings in 2018 from the excess crude account (ECA). It was above $2 billion at the start of 2018, and is now estimated to be close to $1 billion.
“We add government savings from the ECA plus the Nigeria sovereign wealth fund (which stands at about $2 billion in 2019) to calculate public sector liquid external assets. We expect a reduction in external assets, combined with rising external indebtedness, to weaken Nigeria’s net external position.
“Therefore, we estimate narrow net external debt (external debt minus liquid external assets) will likely rise from an average of about 30% of CARs in 2018 to 45% over 2019-2022,” it said.
Although Nigeria produces an international investment position (external asset and liability position), our analysis of Nigeria’s external accounts is hampered by discrepancies in the data that average 20% of CARs. The discrepancies occur between changes in the external stocks and changes in the balance of payments.
Higher oil prices in 2018 have helped increase government revenue, largely offsetting weak non-oil revenue growth. However, projects requiring capital expenditure have been implemented more quickly and deficits remain at the state and local government levels.
“As a result, we project the general government deficit (which combines deficits at the federal, state, and local government levels) will remain above 3% of GDP this year,” it said.
“Our forecast shows oil prices declining and capital expenditure moderating after the election cycle. At the same time, a pick-up in non-oil economic activity should help grow non-oil revenues. These factors should help Nigeria consolidate its fiscal position, as headline deficits decline closer to 2% of
GDP by 2022. We estimate the annual change in net general government debt will average 2.65% of GDP in 2019-2022.
“In projecting the overall general government deficit, we exclude the clearance of fiscal arrears to contractors, suppliers, and lower levels of government that have yet to be reconciled. Fiscal arrears are estimated at 2%-3% of GDP.
“A plan to clear them by issuing debt securities denominated in Nigerian Naira in 2019 has been proposed–if the national assembly approves the plan, our deficit and debt projections could increase by the same margin.
“Overall, we forecast that Nigeria’s gross general government debt stock (consolidating debt at the federal, state, and local government levels) will average 26% of GDP for 2019-2022, which compares favourably with peer countries’ ratios. We also anticipate that general government debt, net of liquid assets, will average close to 20% of GDP in 2019-2022,” the statement disclosed.
The government created the Asset Management Corporation of Nigeria (AMCON) to resolve the nonperforming loan assets of Nigerian banks.
“We include its debt, which comprised about 3% of GDP in 2019, in our calculations of gross and net debt. Over 70% of government debt is denominated in naira, which limits exchange rate risk,” it added.
Despite the relatively low amount of government debt, the cost of servicing it is relatively high, as a percentage of revenue, because of the high coupon on local currency treasury bills and bonds.
“In our view, the high debt-servicing costs–projected to remain over 40% of revenue at the central government level–limit fiscal flexibility.
“We project average debt-servicing costs for 2019-2022 of 30% of general government revenues. This represents a steep increase from just 10% in 2014. Not only are oil revenues lower than they were in 2014, borrowing costs in the domestic market have also risen. To reduce its borrowing costs, the government has borrowed externally to fund maturing short-term domestic debt obligations.
“We assess the exchange rate regime as a managed float. The CBN currently operates multiple exchange rate windows. The main exchange rate windows are the official CBN rate for government transactions, CBN window for banks and manufacturing companies, and the Nigerian Autonomous Foreign Exchange Fixing Mechanism (Nafex) window for all other autonomous transactions. Apart from the official rate, all other rates have converged to the Nafex window, averaging N362 to $1 in 2018. We do not expect any policy decision to merge the various exchange rate windows,” the statement stressed.
With the country’s inflation declining, although still high at an average of 12% in 2018, down from 16.5% in 2017, S%P anticipates that it will fall further to 10% in 2019, and average around 9% over the medium term.
It said good performance in agriculture has helped by increasing crop outputs and the food supply. Lower food prices, combined with lower oil prices and a stable exchange rate, has kept import costs stable and relatively low.
“The banking sector has been operating under difficult economic and regulatory circumstances. We still consider the Nigerian banking sector to be in a correction phase. It suffered high credit losses of 2.5%-3% over the past two years and we expect flat or negative credit growth in 2019-2020.
“That said, the banking sector has stabilized since the 2016 oil price shock–we think material change unlikely in the next 12-24 months. We also expect profitability at the top-tier banks to remain resilient to the credit cycle.
“In 2018, Nigerian banks implemented International Financial Reporting Standards (IFRS) 9 using their regulatory risk reserves, thus shielding their capital ratios from breaching the minimum capital requirements,” it noted.
Most traders evaluate a strategy by looking at its historical performance.
Common metrics such as total return, win rate, profit factor, maximum drawdown, and Sharpe ratio provide valuable information about how a strategy performed in the past.
The problem is that historical performance tells only one story.
Financial markets are inherently uncertain. Even a strategy with an impressive backtest can experience very different outcomes once it encounters changing market conditions, unexpected volatility, or an unfavorable sequence of trades.
This is why professional traders, quantitative researchers, and portfolio managers increasingly rely on Monte Carlo simulation as part of their risk assessment process.
Rather than focusing on a single historical outcome, Monte Carlo analysis explores thousands of possible scenarios, helping traders understand what could happen—not just what already happened.
Why Historical Performance Is Only Part Of The Picture
Backtesting remains one of the most important tools in strategy development.
Platforms such as MetaTrader 5 provide sophisticated testing environments that allow traders to evaluate Expert Advisors and trading systems using historical market data.
A typical backtest may show:
| Metric | Result |
|---|---|
| Net Profit | 35% |
| Win Rate | 54% |
| Maximum Drawdown | 12% |
At first glance, these numbers appear encouraging.
However, every backtest contains one important limitation:
History occurred only once.
The strategy followed a specific sequence of winning and losing trades. If those same trades had occurred in a different order, the overall experience could have looked very different.
This is where Monte Carlo analysis becomes valuable.
Understanding Sequence Risk
One of the most important concepts in Monte Carlo simulation is sequence risk.
Consider a simple series of trades:
| Trade | Result |
|---|---|
| 1 | +3% |
| 2 | +2% |
| 3 | -1% |
| 4 | +4% |
| 5 | -2% |
The overall result is positive.
However, if those same trades occurred in a different order:
| Trade | Result |
|---|---|
| 1 | -2% |
| 2 | -1% |
| 3 | +2% |
| 4 | +3% |
| 5 | +4% |
the final return may remain similar while the path becomes significantly more difficult.
The trader may experience:
- Larger drawdowns
- Longer recovery periods
- Increased psychological pressure
- Greater capital requirements
The strategy itself has not changed.
Only the sequence has changed.
Monte Carlo simulation explores thousands of these alternative scenarios to estimate how different trade sequences may influence future performance.
Exploring Thousands Of Possible Outcomes
Monte Carlo analysis works by generating large numbers of alternative outcomes based on historical strategy behavior.
A simplified process looks like this:
Historical Trade Results
↓
Randomization
↓
Simulation
↓
Repeat Thousands of Times
↓
Risk Analysis
Each simulation represents a plausible alternative version of history.
By repeating this process thousands of times, traders can estimate:
- Potential drawdowns
- Losing streak probabilities
- Capital requirements
- Performance variability
- Confidence intervals
The objective is not to predict the future.
The objective is to understand uncertainty.
Looking Beyond Average Returns
Many traders focus heavily on expected returns.
Risk professionals often focus on worst-case outcomes.
Consider two strategies:
| Metric | Strategy A | Strategy B |
|---|---|---|
| Average Return | 20% | 20% |
| Historical Drawdown | 10% | 10% |
At first glance, they appear nearly identical.
Monte Carlo analysis may reveal a different story:
| Risk Metric | Strategy A | Strategy B |
|---|---|---|
| Worst Simulated Drawdown | 18% | 35% |
| Probability of 20% Drawdown | 5% | 27% |
Although historical results appear similar, future risk characteristics may differ significantly.
This is one reason why institutional investors rarely rely solely on traditional backtest statistics.
The Reality Of Losing Streaks
One of the most underestimated aspects of trading is the impact of consecutive losses.
Even profitable strategies can experience difficult periods.
For example:
| Consecutive Trades |
|---|
| Loss |
| Loss |
| Loss |
| Loss |
| Loss |
| Loss |
Such sequences are completely normal.
However, they often create emotional pressure and lead traders to abandon otherwise profitable systems.
Monte Carlo analysis helps estimate:
- Expected losing streak lengths
- Worst-case losing streaks
- Probability of extended downturns
- Recovery requirements
Understanding these possibilities allows traders to set more realistic expectations before real capital is exposed.
Position Sizing And Capital Preservation
Position sizing is one of the most important applications of Monte Carlo analysis.
Even profitable strategies can fail if risk per trade is too aggressive.
Monte Carlo simulations help answer questions such as:
- How much capital is required?
- What position size is sustainable?
- What drawdown level is acceptable?
- What is the probability of account depletion?
For example, a strategy may appear relatively safe at 1% risk per trade.
The same strategy may exhibit a significant probability of severe drawdowns when risk increases to 5% per trade.
Understanding these relationships often leads to better risk-management decisions.
Portfolio Risk And Diversification
Monte Carlo simulation is not limited to individual strategies.
Portfolio managers frequently use it to evaluate:
- Multi-strategy portfolios
- Multi-asset portfolios
- Diversification effects
- Correlation risks
A portfolio may appear well diversified based on historical data.
However, asset relationships can change unexpectedly during periods of market stress.
Monte Carlo analysis helps traders evaluate how portfolios may behave under alternative scenarios rather than relying solely on historical observations.
Randomness Plays A Bigger Role Than Most Traders Realize
One of the most important lessons of Monte Carlo analysis is that randomness influences results more than many traders expect.
A profitable strategy can experience:
- Unfavorable timing
- Extended drawdowns
- Long losing streaks
- Temporary underperformance
without any deterioration in the underlying strategy.
Understanding this distinction helps traders separate:
| Normal Statistical Variation | Genuine Strategy Problems |
|---|---|
| Temporary drawdowns | Structural performance decline |
| Random losing streaks | Broken trading logic |
| Short-term underperformance | Changing market assumptions |
This perspective is essential for long-term strategy management.
Monte Carlo As Part Of A Complete Validation Process
Monte Carlo analysis works best when combined with other research methods.
Many professional workflows follow a process similar to:
| Step | Process |
|---|---|
| 1 | Strategy Development |
| 2 | Historical Backtesting |
| 3 | Optimization |
| 4 | Monte Carlo Analysis |
| 5 | Forward Testing |
| 6 | Deployment |
| 7 | Ongoing Monitoring |
The broader MetaTrader ecosystem supports many stages of this workflow through strategy testing, optimization, algorithmic development, and performance analysis tools.
The objective is not simply to find profitable strategies.
The objective is to understand how those strategies may behave when market conditions become less favorable.
Why Professional Firms Use Monte Carlo Analysis
Institutional investment firms focus on risk as much as return.
Their goal is not only to identify profitable opportunities but also to understand:
- Capital requirements
- Worst-case scenarios
- Portfolio resilience
- Survival probabilities
These considerations become increasingly important as capital allocations grow larger.
The same principles can benefit independent traders.
A strategy with slightly lower returns but substantially lower risk may ultimately prove more sustainable over the long term.
Understanding Risk Beyond The Backtest
Historical performance provides valuable information, but it tells only part of the story.
Monte Carlo simulation helps traders explore the uncertainty that exists beyond a single backtest result. By generating thousands of alternative scenarios, the technique provides insight into drawdowns, losing streaks, capital requirements, and portfolio resilience.
As algorithmic trading becomes increasingly sophisticated, risk assessment is becoming just as important as strategy development itself.
The most successful traders are often not those who find the highest returns.
They are those who understand the risks behind those returns and prepare for outcomes that may never appear in a traditional backtest.
In modern quantitative trading, understanding uncertainty can be just as valuable as identifying opportunity.
By Adedapo Adesanya
Nigeria attracted $10.37 billion in capital importation in the first quarter of 2026, representing an 83.8 per cent increase from the $5.64 billion recorded in the corresponding period of 2025, according to the National Bureau of Statistics (NBS).
The latest Capital Importation Report released by the stats bureau also showed that capital inflows rose by 60.97 per cent from $6.44 billion recorded in the fourth quarter of 2025.
The report stated, “In Q1 2026, total capital importation into Nigeria stood at $10.37bn, higher than $5.64bn recorded in Q1 2025, indicating an increase of 83.83 per cent. In comparison to the preceding quarter, capital importation increased by 60.97 per cent from $6.44bn in Q4 2025.”
Analysis of the inflows showed that portfolio investment remained the dominant source of foreign capital, accounting for $9.86 billion or 95.09 per cent of the total amount imported into the economy.
The stats office disclosed that foreign direct investment stood at $135.08 million, representing only 1.30 per cent of total capital inflows, while other investments accounted for $374.48 million or 3.61 per cent.
“Portfolio Investment ranked top with $9.86bn, accounting for 95.09 per cent, followed by Other Investment with $374.48m, accounting for 3.61 per cent. Foreign Direct Investment recorded the least with $135.08m, representing 1.30 per cent of total capital importation in Q1 2026,” the report added.
A further breakdown showed that money market instruments attracted the largest share of portfolio investments at $6.50 billion, while investments in bonds amounted to $3.23 billion.
Equity investments under the portfolio category stood at $131.81 million.
The banking sector emerged as the biggest destination for foreign capital during the quarter, attracting $7.55 billion, representing 72.79 per cent of total inflows.
The financing sector followed with $2.43 billion or 23.42 per cent, while the production and manufacturing sector attracted $152.27 million, accounting for 1.47 per cent of total capital imported.
Other sectors that received foreign investments included shares, trading, agriculture, information technology services, telecommunications, oil and gas, transport, construction, healthcare, education, and consultancy services.
The United Kingdom remained Nigeria’s largest source of foreign capital, accounting for $5.08 billion or 49.01 per cent of total inflows. The United States followed with $3.18 billion, representing 30.69 per cent, while South Africa accounted for $983.83 million or 9.49 per cent.
Among financial institutions, Standard Chartered Bank Nigeria Limited received the highest capital inflow during the quarter at $4.41 billion, representing 42.56 per cent of the total.
Stanbic IBTC Bank Plc followed with $2.78 billion or 26.79 per cent, while Rand Merchant Bank handled $930.82 million, accounting for 8.97 per cent.
Other banks that facilitated capital inflows into the country during the period included Citibank Nigeria, Access Bank, First Bank of Nigeria, Guaranty Trust Bank, Zenith Bank, FCMB, Ecobank, Fidelity Bank, and United Bank for Africa.
By Aduragbemi Omiyale
The 2026 licensing round for oil fields is expected to commence in the third quarter of 2026, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has disclosed.
This followed the approval of President Bola Tinubu, who doubles as the Minister of Petroleum Resources.
A statement issued by the spokesperson of NUPRC, Mr Eniola Akinkuotu, on Wednesday said the authorisation is in compliance with the Petroleum Industry Act (PIA).
“We are also fortunate that the President and Minister of Petroleum Resources has approved the 2026 Licensing Round,” the chief executive of the agency, Mrs Oritsemeyiwa Eyesa, was quoted as saying in the statement when she received representatives of Meren Energy (formerly Africa Oil) in Abuja yesterday.
Mrs Eyesan, who expressed satisfaction with the conduct of the 2025 Licensing Round so far, stated that the commercial bid would take place in July, after which the next licensing round would commence.
The NUPRC boss said the heightened participation in the 2025 Licensing Round was a testament to the fact that Nigeria was headed in the right direction.
She said the rise in investments, coupled with the upswing in production, was evidence that Nigeria’s oil and gas sector, under the leadership of President Bola Tinubu, had become attractive.
“We are in the process of finalising the 2026 launch, which will happen by the third quarter at the latest. So, this is the make-or-break point, and we want to make sure we make it,” she stated.
In his remarks, the chief executive of Meren Energy, Mr Oliver Quinn, said the current reforms had inspired the company to increase its investments in Nigeria, hence its interest in asset divestments and licensing rounds, revealing that his company’s investment priority is Africa, of which Nigeria ranks as number one.
“We have operated in Agbami, Akpo and Egina world-class fields. I think till date, in 20 years, about $11bn in capital from our side has gone into these assets, and about $4bn has gone to tax and royalties,” he said, adding, “Nigeria remains the core of our business today because of the quality of these assets.”
According to Mr Quinn, Meren Energy is pressuring its partners on these assets to deepen their investments and then increase overall production, noting that the energy firm was the first in Nigeria to sell crude oil to the Dangote refinery and will continue to fulfil its Domestic Crude Supply Obligation so long as the price remains right.
-
Feature/OPED6 years agoDavos was Different this year
-
Travel/Tourism10 years ago
Lagos Seals Western Lodge Hotel In Ikorodu
-
Showbiz3 years agoEstranged Lover Releases Videos of Empress Njamah Bathing
-
Banking8 years agoSort Codes of GTBank Branches in Nigeria
-
Economy3 years agoSubsidy Removal: CNG at N130 Per Litre Cheaper Than Petrol—IPMAN
-
Banking3 years agoSort Codes of UBA Branches in Nigeria
-
Banking3 years agoFirst Bank Announces Planned Downtime
-
Sports3 years agoHighest Paid Nigerian Footballer – How Much Do Nigerian Footballers Earn