While the economic rationale for the fresh $6 billion external borrowing recently approved by the National Assembly appeared broadly defensible, it poses significant concerns over fiscal prudence, a report by Afrinvest has stated.
The report also warned that beyond the immediate energy price shock, a prolonged crisis in the Middle East presents a material downside risk to Nigeria’s already fragile food security position through the fertiliser channel.
It pointed out that rising input costs and freight rerouting are likely to push global benchmark prices, urging the federal government to initiate policy interventions to enhance food security.
The Afrinvest Monthly Market Report – March 2026; Analysing Global and Nigerian Economies and Financial Markets, cautioned that a 20 per cent to 30 per cent increase in fertiliser prices could lead to a 10 per cent to 20 per cent reduction in application rates, based on historical elasticity observed during 2022–2023.
It stated that additional input cost pressures were likely to result in further margin compression, forcing firms to either pass costs onto consumers or rationalise output.
The report, among other things, called for a coordinated response from both policymakers and businesses to address the emerging fertiliser crisis.
It said policymakers should prioritise preserving fertiliser affordability at the onset of the planting season through targeted interventions such as input subsidies and tax incentives for local producers.
The report further revealed that in the review month, Nigeria’s external reserves slipped 0.5 per cent, month on month, to $49.4 billion as Middle East-driven risk aversion triggered a flight to safety from emerging markets.
This, it said, dampened foreign investment inflows even as elevated oil prices failed to deliver a meaningful boost to the country’s foreign exchange receipts.
Afrinvest further pointed out that the central Bank of Nigeria (CBN)’s newly introduced policy which allowed for IOC’s to fully repatriate export proceeds contributed to the reserves decline.
It said, “ At the official FX market (NAFEM), the Naira declined 1.7 per cent m/m against the USD to exchange at N1,386.72/$1.00, while at the parallel market, it shed 3.5 per cent m/m to close at N1,415.00/ $1.00.”
However, Afrinvest particularly expressed concern that the 2026 proposed budget of N58.2 trillion (now raised to N68.3 trillion by the national Assembly) was yet to be assented to, raising questions about the legal and fiscal basis for borrowing.
It said, “This concern is amplified by the fact that the 2025 external borrowing provision of N1.8 trillion (about $1.2 billion) has already been exceeded by the $2.4 billion Eurobond issued in November 2025.
“Even if the borrowing is justified under the 2026–2028 Medium-Term Expenditure Framework (MTF), the Naira equivalent of the new borrowing, N8.3 trillion, is more than double the N3.6 trillion external borrowing provision for 2026 in the MTF.
“This raises questions about whether this constitutes a supplementary budget to the 2025 budget or a pre-emptive expansion of the yet-to-be-approved 2026 fiscal framework.”
It warned that recent improvements in the country’s debt-to-GDP ratio to 38 per cent in mid-2025, largely driven by GDP rebasing, could quickly reverse if borrowing continues to outpace revenue growth.
The report said, “Data from the Debt Management Office (DMO) indicates that total public debt reached N153.3 trillion as of Q3:2025, with the federal government accounting for approximately 91.0 per cent of this total, representing an increase of about N65.5 trillion since mid-2023.
“While borrowing remains a legitimate tool for augmenting fiscal capacity, its sustainability ultimately depends on its deployment into productive, value-accretive capital expenditure.
“In principle, Nigeria should be benefiting from elevated global oil prices. However, persistent structural bottlenecks – including oil theft, pipeline vandalism, and an uncompetitive regulatory environment to attract large scale investment capital – continue to constrain output below budget benchmarks, limiting the country’s ability to capture potential windfall gains.”
It stated, “Against this backdrop, we reiterate the need for stricter alignment of borrowing with approved fiscal frameworks, enhanced legislative scrutiny, and greater fiscal discipline.
“Ultimately, Nigeria’s macroeconomic stability will depend not only on external developments but also on the coherence, credibility, and discipline of its domestic policy choices.”
Nevertheless, the Afrinvest report recommended that businesses, particularly within agriculture and agro-allied manufacturing should strengthen procurement strategies through forward contracting and supplier diversification, optimise input efficiency, and reinforce working capital buffers to manage fertiliser price volatility.
It stated, “Historically, fertiliser prices have exhibited strong co-movement with energy benchmarks; during the Russia-Ukraine War, for instance, urea prices surged more than threefold at peak levels, reflecting the combined impact of energy price shocks and supply disruptions.
“Current market dynamics suggest that the risk lies more in a price shock – estimated in the range of 10.0-30.0%, rather than a physical supply shortfall. Natural gas, which accounts for 60.0-80.0 per cent of ammonia production costs, remains the key transmission mechanism, while phosphate fertilisers depend on sulphur and ammonia inputs linked to Gulf supply chains.
“Although major producers such as Morocco and North America are not entirely dependent on transit routes through the Strait of Hormuz, rising input costs and freight rerouting are likely to push global benchmark prices.
It stressed that “The flair and pomp that accompanied President Bola Tinubu’s historic state visit to the United Kingdom – the first by any Nigerian leader in 37 years – may carry symbolic diplomatic significance, but they offer little consolation for the reality that Nigeria’s macroeconomic narrative closed Q1:2026 on a negatively skewed note.”
The report further stressed, “For Nigeria, the implications are asymmetric. While domestic producers such as Dangote Fertiliser Limited and Indorama Eleme Fertiliser & Chemicals can sustain urea production, the country remains over 70.0 per cent import-dependent for phosphate and almost entirely reliant on potash imports, according to the National Bureau of Statistics (NBS).
“This creates a cost-push dynamic for NPK blending, as local manufacturers face rising input costs, foreign exchange constraints, and potential working capital strain.
“With Nigeria’s annual fertiliser consumption estimated at 6.5–7.0 million metric tonnes – dominated by NPK usage among smallholder farmers – a 20.0–30.0 per cent increase in fertiliser prices could lead to a 10.0–20.0 per cent reduction in application rates, based on historical elasticity observed during 2022–2023.
“For key crops such as maize, rice, and palm oil, reduced NPK application could result in yield declines of up to 15.0–20.0 per cent, given the importance of balanced nutrient inputs.”
Continuing, it stated, “In such a scenario, farmers are likely to substitute toward urea (nitrogen-only fertilisers), reduce cultivated acreage, or delay planting cycles, with significant knock-on effects for agro-allied sectors as raw material availability tightens and cost volatility increases.
“Vulnerable regions, particularly in Northeast Nigeria, remain disproportionately exposed. While a global fertiliser shortage may not materialise, the risk of a fertiliser affordability shock in Nigeria is elevated, with implications for weaker agricultural output and renewed pressure on food inflation in the medium term.
“These pressures are already transmitting into the manufacturing sector, particularly through agro-allied value chains, where rising input costs are driving raw material inflation for food processors and FMCG companies. Historical precedent underscores this risk: in 2022, major FMCG players such as BUA Foods, Dangote Sugar, and Honeywell Flour recorded significant increases in cost-of-sales ratios following fertiliser price shocks.
“With industry cost structures already elevated, averaging around 70.0 per cent due to the combined effects of FX depreciation and energy price liberalisation since mid2023, additional input cost pressures are likely to result in further margin compression, forcing firms to either pass costs onto consumers or rationalise output.”
James Emejo
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