Market News

By Chinwendu Obienyi

Nigeria risks facing higher borrowing costs and weaker investor confidence after failing the United States’ minimum fiscal transparency requirements for the second consecutive year.

This is coming after the U.S Department of State, in its 2026 Fiscal Transparency Report published on August 11, said Nigeria made no significant progress in addressing deficiencies in its public financial management and disclosure practices during the review period covering January 1 to December 31, 2025.

Rather, the likes of Ghana, Kenya, Rwanda, South Africa and Uganda, alongside India, Indonesia, Morocco and Mauritius, all met the requirements.

The report identified weaknesses in Nigeria’s budget preparation and execution, public auditing and procurement transparency. It said the government did not publish its executive budget proposal within a reasonable period and that the country’s budget documents did not provide a substantially complete picture of government revenues and expenditures.

It also found that actual government revenues and spending did not reasonably correspond with the enacted budget.

“During the review period, the government made its enacted budget and end-of-year report widely and easily accessible to the public, including online, but did not publish its executive budget proposal within a reasonable period,” the report said.

It also found discrepancies between actual revenues and expenditures and the enacted budget, raising concerns about the quality of budget implementation.

Actual revenues and expenditures did not reasonably correspond to those in the enacted budget,” the report said.

Commenting on the development, economic experts who spoke to Daily Sun, said that the findings could increase the risk premium attached to Nigerian government securities, particularly if investors believe the country’s fiscal position is less transparent than official budget figures suggest.

Vice Chairman, Board of Directors at Highcap Securities, David Adonri, noted that that transparency remains a pricing factor in the sovereign debt market, one which is against Nigeria at the moment owing from the report.

“When investors cannot reconcile the approved budget with actual revenues and expenditures, they demand compensation for the uncertainty. That compensation usually comes through higher yields.

Higher yields would increase the cost of servicing Nigeria’s domestic debt and could place additional pressure on the government’s already limited fiscal space. Rising interest payments would leave fewer resources available for infrastructure, social programmes and economic development”, Adonri explained.

The concern comes after data from the International Monetary Fund’s 2026 Article IV consultation indicated that Nigeria had approximately N8.8 trillion, equivalent to about 2 per cent of gross domestic product, in unrecorded or off-budget public spending. However, the federal government has rejected the IMF’s assessment.

Head of Research at FSL Securities, Chiazor Victor, however said, the US report should not be interpreted as an immediate trigger for a downgrade or withdrawal of investor funds, but warned that repeated failures could gradually damage market confidence.

“The issue is not that one report automatically closes access to financing. The problem is the accumulation of doubts. If investors repeatedly see incomplete disclosure, unexplained budget deviations and limited audit scrutiny, they will price Nigeria as a higher-risk borrower”, he said

Victor added that the transparency concerns could also affect foreign portfolio flows and add to pressure on the naira.

“Foreign investors typically assess not only a country’s debt levels, but also the reliability of the data used to measure fiscal and external risks.

If investors suspect that public spending and financing needs are understated, they may demand higher returns before investing in naira-denominated assets. Some may also reduce their exposure, increasing demand for foreign currency and potentially adding to exchange-rate volatility”, he explained.

However, he noted that the report is one of several factors influencing the naira and Nigerian asset prices. According to him, interest-rate differentials, oil production, foreign-exchange liquidity, inflation, global market conditions and fiscal reforms will continue to play a more immediate role.

Nevertheless, the U.S report credited Nigeria with making information on debt obligations, including major debts of state-owned enterprises, publicly available. It also recognised the country’s legal framework for its sovereign wealth fund.

Making recommendations, Victor stressed that the federal governmennt could use the report to accelerate reforms rather than treat it solely as a reputational setback.

Priority measures include publishing budget proposals on time, reconciling approved budgets with actual outcomes, recording all major public spending, strengthening audit independence and disclosing basic details of procurement contracts and natural-resource concessions.

“If the government responds with verifiable reforms, the impact on borrowing costs can be reversed. Markets respond not only to bad news, but also to credible evidence that weaknesses are being corrected”, he noted.

Nigeria’s second consecutive failure sends a clear signal to lenders and investors, improving the credibility, completeness and accessibility of public financial information is becoming increasingly important to the country’s efforts to reduce fiscal vulnerabilities and secure cheaper financing.