Business

Debt Servicing To Hit N10.43tn, Economists Slam FG

Published

2 years ago

August 8, 2022

The Federal Government has projected that debt servicing will cost N10.43tn by 2025, according to the 2023-2035 Medium Term Expenditure Framework & Fiscal Strategy Paper.

This is a 182.66 per cent increase from the N3.69tn budgeted for debt service in 2022.

Multilateral agencies and economists have constantly warned the Federal Government about the rising cost of debt service, which can trigger a crisis for the country.

However, the Minister of Finance, Budget and National Planning, Dr Zainab Ahmed, and the Director General of the Debt Management Office, Patience Oniha, have insisted that the country does not have a debt problem but a revenue challenge.

In a document by the DMO DG recently obtained by our correspondent, the DMO stated that high debt levels would often lead to high debt services and affect investments in infrastructure.

According to the DMO DG, “High debt levels lead to heavy debt service which reduces resources available for investment in infrastructure and key sectors of the economy.”

In the document, she stressed the need for debt sustainability, which she defined as the ability to service all current and future obligations, while maintaining the capacity to finance policy objectives without resort to unduly large adjustments or exceptional financing such as arrears accumulation, debt restructuring, which could otherwise compromise the economy’s stability.

Speaking at the launch of the World Bank’s Nigeria Development Update titled, ‘The urgency for business unusual,’ held recently in Abuja, the finance minister had admitted that Nigeria was struggling to service its debt.

She said, “Already, we are struggling with being able to service debt because even though revenue is increasing, the expenditure has been increasing at a much higher rate, so it is a very difficult situation.”

The International Monetary Fund had earlier warned that debt servicing might gulp 100 per cent of the Federal Government’s revenue by 2026 if the government failed to implement adequate measures to improve revenue generation.

According to the IMF’s Resident Representative for Nigeria, Ari Aisen, based on a macro-fiscal stress test that was conducted on Nigeria, interest payments on debts might wipe up the country’s entire earnings in the next four years.

Aisen said, “The biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue, and as you see us in terms of the baseline from the federal government of Nigeria, the revenue of almost 100 per cent is projected by 2026 to be taken by debt service.

“So, the fiscal space or the amount of revenues that will be needed and this, without considering any shock, is that most of the revenues of the Federal Government are now, in fact, 89 per cent and it will continue if nothing is done to be taken by debt service.”

Less than two months after Aisen’s warning, the finance minister disclosed that Nigeria’s debt service cost surpassed its revenue in the first four months of this year.

Debt service gulped N1.94tn between January and April 2022, as against a retained revenue of N1.63tn.

According to a recent PUNCH report, the Federal Government exceeded its debt service allocation by N1.15tn for the period between January and November 2021.

A copy of the public presentation of the 2022 approved budget by the finance minister showed that the Federal Government allocated N3.32tn for debt servicing in 2021.

However, the minister’s presentation document showed that a total of N4.2tn was spent on debt servicing in 11 months, indicating a difference of N1.15tn or 37.9 per cent of the money allocated for debt servicing for the period.

The PUNCH also reports that Nigeria’s debt servicing bill increased by 109 per cent, from N429bn in December 2021 to N896bn in March 2022.

A report by the Nigerian Economic Summit Group and the Open Society Initiative for West Africa has disclosed that Nigeria and 10 other Economic Community of West African States countries are currently in debt distress based on debt sustainability analysis.

The 10 other countries are: Benin, Burkina Faso, Cabo Verde, the Gambia, Ghana, Guinea Bissau, Liberia, Niger, Senegal, and Togo.

It was further disclosed in the report that public debt accumulation for these countries was becoming unsustainable and needed to be addressed to avert the looming debt crisis.

The report warned that the possibility of a debt crisis in Nigeria would adversely affect public and private investments, as well as other sectors of the country.

The World Bank recently said that Nigeria’s debt, which might be considered sustainable for now, was vulnerable and costly.

According to the Washington-based global financial institution, the country’s debt was also at risk of becoming unsustainable in the event of macro-fiscal shocks.

Experts have kicked against the Federal Government’s proclivity for debt, which they have described as unsustainable.

Economists slam FG’s debt proclivity

The Chief Executive Officer of Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said that the Nigerian economy had been characterised by diverse economic vulnerabilities, which included rising public debt and debt service burden.

He said, “Debt service to revenue ratio for the first four months of the current year is over 100 per cent. The implication of this is that the actual revenue of the government over the period is not sufficient to service debt. Therefore, financing of the operations of government – personnel cost, overhead cost, capital expenditure, and even part of the servicing of the debt – will have to come from additional borrowing. These portend severe vulnerabilities for the Nigerian economy.”

A Professor of Development Macroeconomics at the University of Lagos, Prof Olufemi Saibu, criticised the government for over-borrowing.

He said, “I think we are over-borrowing. We continue to rely on international benchmarks, which make us lazy in terms of revenue generation.”

Prof Saibu urged the government to lessen its huge expenditure costs and channel money into more productive sectors of the economy.

“With our current heavy infrastructure debt financing and the low productivity in the local economy, the government needs to find a way of reducing its expenditures. We need to redirect the government’s finances to areas that are productive and borrow less for consumption,” he said.

In addition, Prof Saibu said that the government needed to look inwardly and borrow domestically rather than externally, which would lessen the burden of debt service.

He said the government should stop saying the country had the capacity to borrow more, and refrain from ballooning already outsized debts.

Prof Saibu advised that the government should engage the private sector in the area of infrastructure development to reduce the weight on the public sector.

A Professor of Development Economics at Babcock University, Prof Adegbemi Onakoya, said that borrowing was not an issue but the value obtained from it.

He also said that Nigeria had a revenue problem, which had made the country rely more on debt financing.

Prof Onakoya also said that there was a problem when money borrowed was not judiciously applied for productive purposes or programmes that would help production.

PUNCH

Business

CBN Gives New Directive On Lending In Real Estate

Published

2 days ago

April 17, 2024

Editor

The Central Bank of Nigeria, CBN, has released a new regulatory directive to enhance lending to the real sector of the Nigerian economy.

The directive, issued on April 17, 2024, with reference number BSD/DIR/PUB/LAB/017/005 and signed by the Acting Director of Banking Supervision, Adetona Adedeji, signifies a notable shift in the bank’s policy towards a more contractionary approach.

In line with the new measures, the CBN has reduced the loan-to-deposit ratio by 15 percentage points, down to 50 per cent.

This move aligns with the CBN’s current monetary tightening policies and reflects the increase in the Cash Reserve ratio rate for banks.

The LDR is a metric used to evaluate a bank’s liquidity by comparing its total loans to its total deposits over the same period, expressed as a percentage.

An excessively high ratio may indicate insufficient liquidity to meet unexpected fund requirements.

All Deposit Money Banks are now mandated to adhere to this revised LDR.

The CBN has stated that average daily figures will be utilised to gauge compliance with this directive.

Furthermore, while DMBs are encouraged to maintain robust risk management practices in their lending activities, the CBN has committed to continuous monitoring of adherence and will adjust the LDR as necessary based on market developments.

Adedeji has called on all banks to acknowledge these modifications and adjust their operations accordingly. He emphasised that this regulatory adjustment is anticipated to significantly influence the banking sector and the wider Nigerian economy.

The circular read in part, “Following a shift in the Bank’s policy stance towards a more contractionary approach, it is crucial to revise the loan-to-deposit ratio policy to conform with the CBN’s ongoing monetary tightening.

“Consequently, the CBN has decided to decrease the LDR by 15 percentage points to 50 per cent, proportionate to the rise in the CRR rate for banks.

“All DMBs must maintain this level, and it is advised that average daily figures will still be applied for compliance assessment.

“While DMBs are urged to sustain strong risk management practices concerning their lending operations, the CBN will persist in monitoring compliance, reviewing market developments, and making necessary adjustments to the LDR. Please be guided accordingly.”

Business

JUST IN: Dangote Slashes Diesel Price

Published

2 days ago

April 16, 2024

Editor

The Dangote Petroleum Refinery has announced a reduction in the price of Automotive Gas Oil, popularly called diesel, from N1,200/litre to N1,000/litre.

It announced this in a statement issued on Tuesday by its spokesperson, Nduka Chiejina.

The statement read in part, “In an unprecedented move, Dangote Petroleum Refinery has announced a further reduction of the price of diesel from N1,200 to N1,000/litre.

“While rolling out the products, the refinery supplied at a substantially reduced price of N1,200/litre three weeks ago, representing over 30 per cent reduction from the previous market price of about N1,600/litre.

“This significant reduction in the price of diesel at Dangote Petroleum Refinery is expected to positively affect all the spheres of the economy and ultimately reduce the high inflation rate in the country.”

According to The PUNCH report, last week, oil marketers called on the refinery to reduce its diesel price, as they urged managers of the facility to sell at N850/litre.

Details later…

Business

Nigeria’s Oil Production Drops Again, Now 1.23mbpd – OPEC

Published

7 days ago

April 12, 2024

Editor

Nigeria’s crude oil production witnessed the second consecutive monthly decline since the beginning of this year, as it dropped to 1.231 million barrels per day in March, the Organisation of Petroleum Exporting Countries stated on Thursday.

OPEC disclosed this in its latest Monthly Oil Market Report for April 2024, stating that crude oil production details which it got through direct communication from Nigeria showed that the country pumped less oil in March when compared to what was produced in February.

Data from the report indicated that Nigeria produced 1.322 million barrels per day of crude in February this year, but this dropped to 1.231mbpd in March, representing a plunge of 91mbpd.

The report further stated that the country had produced 1.427mbpd of crude in January, but this was not sustained in February as it dropped in that month, while the southward oil production continued in March.

OPEC data, however, showed that the country’s average crude oil production in the first quarter of 2024 was 1.327mbpd, higher than the 1.313mbpd average oil production in the fourth quarter of 2023.

Nigeria’s first quarter oil output in 2024 was also higher than the 1.201mbpd average production in the third quarter of last year.

Oil theft and pipeline vandalism have dealt severe blows on Nigeria’s oil production, limiting the country’s output and making it fall below the volume approved for Nigeria by OPEC.

The PUNCH reported on Wednesday that the Nigerian National Petroleum Company Limited recorded 155 oil theft incidents in one week.

The report that stated the company revealed that during the review period, 53 illegal pipeline connections and 36 illegal refineries were uncovered in the Niger Delta.

“Between March 30 and April 5, 2024, a total of 155 incidents were recorded across several locations in the Niger Delta region from various incident sources,” the firm stated.

In a summary of the incidents, NNPCL stated that it recorded 53 illegal connections, discovered 36 illegal refineries and 32 wooden fibre boats, identified 14 pipeline vandalism cases, eight vessel infractions and four oil spills, as well as made seven vehicle and one vessel arrests.

Some of the incident sources include the Nigeria Agip Oil Company, Tantita Security Services Ltd, NNPCL Command and Control Centre, Shell Petroleum Development Company, NNPCL 18 Operating Ltd, among others.

Providing additional details, the company said, “In the past week, 32 wooden boats conveying stolen crude and illegally refined products were seized and confiscated in Rivers and Delta states.

“On land, seven vehicles loaded with stolen crude were arrested in Imo, Delta and Rivers states. 53 illegal connections were uncovered between March 30 and April 5, 2024 in Bayelsa, Rivers and Delta states.

“14 cases of vandalism were also recorded in Rivers, Bayelsa and Delta states, while illegal storage sites where stolen crude and illegally refined products are kept were uncovered in Akwa Ibom, Bayelsa, Rivers and Delta states.”

The national oil company also stated there were clusters of illegal refineries in Abia State, as activities of oil thieves had devastated the effected environments in the state.

It said 36 clusters of the illegal refineries were discovered in the past week across several locations in Rivers and Abia states.

“Four cases of oil spills due to activities of vandals were recorded in the past week,” NNPCL stated, adding that in Rivers State, oil leaks from a wellhead is destroying aquatic lives.

NNPCL stated that 38 suspects were arrested during the week under review, stressing that the national oil company would not back down on the war against crude oil theft until the menace is eradicated.

Nigeria has been losing trillions of naira to crude oil theft, a development that has made some international oil companies to divest from onshore to deep offshore oil fields, while others have exited the country.

In November 2023, for instance, The PUNCH reported that the Federal Government revealed that more than N4.3tn worth of crude oil was stolen in 7,143 pipeline vandalism cases within a period of five years.

The report stated that the government disclosed this at the Nigeria International Pipeline Technology and Security Conference in Abuja, with the theme, ‘Bolstering Regulations, Technology and Security for Growth.’ The conference was organised by the Pipeline Professionals Association of Nigeria.

In a presentation at the conference by the Nigeria Extractive Industries Transparency Initiative, a Federal Government agency, the organisation revealed that oil theft and losses in Nigeria had become a national emergency.

The Executive Secretary, NEITI, Ogbonnaya Orji, said oil theft was an emergency that posed serious threat to oil exploration and exploitation with huge negative consequences on economic growth, business prospects and profit earnings by oil companies.

Providing data from the agency’s reports to back his claims, he said, “NEITI disclosed that in the last five years, 2017 to 2021, Nigeria recorded 7,143 cases of pipeline breakages and deliberate vandalism resulting in crude theft and product losses of 208.639 million barrels valued at $12.74m or N4.325tn.

“NEITI reports also disclosed that during the same period Nigeria spent N471.493bn to either repair or maintain pipelines.”
PUNCH