Record government spending – and having to borrow to fund almost half of it – spells trouble for investors in the bonds of Africa’s biggest oil producer.

Nigeria’s naira debt has lost 3.6 percent in dollar terms this year, the most after Russia, Colombia and Mexico’s local bonds among 31 emerging nations tracked by Bloomberg. Average yields have climbed 119 basis points to 11.89 percent since the end of December. More losses may be in store, according to Barclays Plc.

President Muhammadu Buhari is attempting to counter an economic slowdown as crude oil trades near 12-year lows by increasing government spending by about 20 percent in 2016 to $31 billion. His administration says it will partly plug the $15 billion deficit with 900 billion naira ($4.5 billion) of extra debt issuance on local markets, alongside $5 billion of external funding. What will make his task even harder is the absence of foreign investors, who fled Nigeria last year in anticipation of a currency devaluation they see as inevitable, but which the government is avoiding.

“If you look at the larger fiscal gap and the planned increase in issuance, you’d expect some pressure on yields,” Ridle Markus, an Africa strategist at Barclays’ South African unit, said by phone from Johannesburg on Tuesday. “It will mostly be local investors that participate. I can’t see foreigners returning” without a devaluation, he said.

While demand from Nigerian pension funds, banks and other investors should be strong enough to ensure the government meets its funding targets, yields could rise to around 14 percent, according to Markus. On Wednesday, the Abuja-based Debt Management Office sold 90 billion naira of bonds due in February 2020 and January 2026 at yields of 12.19 percent and 12.39 percent, respectively.

Nigeria’s borrowing rates would already be higher if the central bank hadn’t increased liquidity in the local money markets to get commercial banks to boost lending, according to Samir Gadio, the London-based head of Africa strategy at Standard Chartered Plc. Surplus liquidity is now around 1 trillion naira on a daily basis, he said.

The central bank has all but closed the official foreign-exchange market through trading restrictions meant to hold the naira in a range of roughly 197 to 199 against the dollar. That’s preventing banks and others from investing surplus cash abroad. The Nigerian currency declined 0.1 percent to 199.05 per dollar by 2:24 p.m. in Lagos, the commercial capital.

“The reason the local yields are so low is because of a hot-house effect,” Antoon de Klerk, a fund manager at Investec Asset Management, said by phone from London on Tuesday. “The central bank has pumped a lot of liquidity into the market. Normally, if there wasn’t a partially closed capital account, it would be difficult as it would put pressure on the currency.”

Pressure is building on central bank Governor Godwin Emefiele and Buhari to let the currency slide. The black-market rate fell to a record 314 against the dollar on Wednesday, while forwards prices suggest the interbank one will weaken 31 percent to 288 in a year. If Nigerian authorities succumb and devalue, that may also force local bond yields higher, Gadio at Standard Chartered said.

“Eventually, the curve will correct because foreign-exchange conditions will have to normalize,” he said. “That’s why we’re underweight Nigerian rates. There’s no real value here at the moment.”

•Text courtesy of Bloomberg. Photo shows DMO DG, Dr. Abraham Nwankwo.