Business

Nigeria’s Debt Vulnerable, Costly, Alerts World Bank

Published

2 years ago

January 4, 2022

Editor

The World Bank has disclosed that Nigeria’s debt, which may be considered sustainable for now, is vulnerable and costly.

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

The bank said this in the November edition of its Nigeria Development Update.

It said, “Nigeria’s debt remains sustainable, albeit vulnerable and costly, especially due to large and growing financing from the Central Bank of Nigeria.

“While currently the debt stock of 27 per cent of the Gross Domestic Product is considered sustainable, any macro-fiscal shock can push debt to unsustainable levels.

“However, the debt to the GDP in Nigeria is rising quickly, and the total stock of debt in absolute value has almost doubled between 2016 and 2020, and without a policy change is expected to reach 40 per cent of the GDP by 2025.”

The bank further expressed concerns over the nation’s cost of debt servicing, which according to it, disrupts public investments and critical service delivery spending.

“The cost of debt servicing is also a concern as it is potentially crowding out public investment and critical service delivery spending. Interest costs have been above two per cent of the GDP since 2018, reaching 2.4 per cent of the GDP in 2019 and then falling to 2.2 per cent of the GDP in 2020.

“Cost of debt is high as Federal Government also resorts to overdraft (Ways and Means financing) from the CBN to meet in-year cash shortfalls. At end of 2020, the stock of the CBN Ways and Means financing was estimated at N13.1tn or 8.5 per cent of the GDP,” it stated.

It, however, said that the Federal Government was making efforts to negotiate terms with the CBN in order to convert the stock of overdraft financing into a long-term debt instrument, which would lower the cost of debt for the government and enhance fiscal sustainability over the medium long term.

Economists have raised concerns over the rising debt profile of the Federal Government.

The PUNCH had exclusively reported that the Federal Government was planning to push its public debt stock to N50.22tn by 2023, with domestic debt at N28.75tn and external debt at N21.47tn.

This was according to the projections in the National Development Plan 2021-2025.

The Debt Management Office had disclosed that Nigeria’s public debt was N38tn as of the end of the third quarter of 2021, with the total debt stock rising by N2.540tn in three months between July and September 2021.

The NDP shows that the regime of the President, Major General Muhammadu Buhari (retd.), plans to accumulate about N12tn debt in two years from 2021 to 2023.

However, based on the plan, the government targets a reduction in total public debt by 2025.

A tabular illustration in the document shows the government targets N39.59tn debt stock for 2021, N46.63tn for 2022, N50.22tn for 2023, N50.53tn for 2024, and N45.96tn by 2025.

Analysts have agreed with the World Bank on the costly and vulnerable nature of Nigeria’s public debt.

The Fiscal Policy Partner and Africa Tax Leader of PwC, Mr Taiwo Oyedele, expressed his agreement with the World Bank’s assertion, highlighting the high cost of debt servicing.

He said, “I agree with the World Bank. Although the debt to GDP ratio is not too high, if you think about the debt service cost to revenue ratio, it is already over 70 per cent. That’s when you know it’s costly.

“Nigeria borrows at double-digit, and even when we borrow in dollars, the rates are very high and then you devalue the naira and the cost of servicing the debt in naira goes up because it is dollar-dominated debt.

“Put all of that together, and you can easily say to yourself that even though our debt to GDP ratio is very low, our cost of borrowing is unsustainable because it is very high, and therefore, make it very costly.”

He advised the government to have an integrated debt-revenue-expenditure strategy, which would address expenditure efficiency, terms of borrowing, and revenue optimisation.

He also advised the government to reconsider its priorities regarding its national budget.

A former Deputy Governor of the Central Bank of Nigeria and former presidential candidate, Kingsley Moghalu, also criticised the increasing borrowing tendency of the government, urging the officials to re-consider other ways of generating revenue for the country.

“There are many ways through which we can improve Nigeria’s domestic revenue situation without selling the future of our country. As to the argument that Nigeria does not have a debt problem but a revenue problem, that is mere sophistry. If you’re spending 90kobo of every one naira you earn repaying debt, you are insolvent.

“You cannot say that we have a debt-to-GDP ratio that allows you to continue borrowing. No! That is an argument for sustainable economies. You cannot be comparing Nigeria with advanced economies. We are in an economy that is still very basic.

“If you are not earning enough revenue, why are you borrowing? You are just compounding your problem. Why don’t you focus on where to get the revenue from instead of lazily ignoring that problem and just trying to survive with borrowing?

“If an individual was living a life that way, it would be a calamity. That is why Nigeria is in a calamitous situation today economically,” he said.

According to Moghalu, it is also not reasonable to borrow for infrastructural development as the government can expand the public-private partnership options for such development.

He said, “You cannot be borrowing for infrastructure. They should go and expand the PPP options for infrastructure.

“You don’t have to impoverish this country by borrowing. This is not sensible economic management.

“How sustainable economically are those infrastructures they claim to be building? Are they yielding enough money to pay back the debt?”

(PUNCH)

Business

[ICYMI]FULL LIST: 16 Banking Transactions Exempted From CBN’s New

Published

1 day ago

May 7, 2024

Editor

The Central Bank of Nigeria on Monday directed all banks to commence charging a 0.5 per cent cybersecurity levy on all electronic transactions within the country.

The apex bank stated this in a circular signed by the Director, Payments System Management Department, Chibuzo Efobi; and the Director, Financial Policy and Regulation Department, Haruna Mustafa; a copy of which was obtained by The PUNCH.

The circular, which was directed to all commercial, merchant, non-interest, and payment service banks, among others; noted that the implementation of the levy would start two weeks from Monday, May 6, 2024.

“The levy shall be applied at the point of electronic transfer origination, then deducted and remitted by the financial institution. The deducted amount shall be reflected in the customer’s account with the narration, ‘Cybersecurity Levy,’” the circular partly read.

In this piece, The PUNCH highlights all the 16 banking transactions that are exempted from the CBN’s new cybersecurity levy:

Loan disbursements and repayments
Salary payments
Intra-account transfers within the same bank or between different banks for the same customer
Intra-bank transfers between customers of the same bank
Other Financial Institutions instructions to their correspondent banks
Interbank placements,
Banks’ transfers to CBN and vice-versa
Inter-branch transfers within a bank
Cheque clearing and settlements
Letters of Credits

Banks’ recapitalisation-related funding – only bulk funds movement from collection accounts
Savings and deposits, including transactions involving long-term investments such as Treasury Bills, Bonds, and Commercial Papers.
Government Social Welfare Programmes transactions e.g. Pension payments
Non-profit and charitable transactions, including donations to registered non-profit organisations or charities
Educational institutions’ transactions, including tuition payments and other transactions involving schools, universities, or other educational institutions
Transactions involving bank’s internal accounts such as suspense accounts, clearing accounts, profit and loss accounts, inter-branch accounts, reserve accounts, nostro and vostro accounts, and escrow accounts.

Business

ICYMI: Five Things To Know About The New Cybersecurity Levy To Be Paid By Nigerians

Published

1 day ago

May 7, 2024

Editor

The Central Bank of Nigeria, on Monday, directed banks and other financial institutions to start charging a cybersecurity levy on all banking transactions.

According to the circular sighted by The PUNCH, the implementation of the levy would start in two weeks.

The circular read in part, “Following the enactment of the Cybercrime (Prohibition, Prevention, etc) (amendment) Act 2024 and pursuant to the provision of Section 44 (2)(a) of the Act, ‘a levy of 0.5% (0.005) equivalent to a half percent of all electronic transactions value by the business specified in the Second Schedule of the Act,’ is to be remitted to the National Cybersecurity Fund, which shall be administered by the Office of the National Security Adviser.”

Here are some things to know about the cybersecurity levy to be paid by Nigerians, according to the CBN circular:

1. A new levy of 0.5%, equivalent to half per cent, is applied to electronic transactions as mandated by the Cybercrime (Prohibition, Prevention, etc) (amendment) Act 2024.

2. The levy is paid by the originator of the electronic transaction and deducted by the financial institution. The deducted amount shall be reflected in the customer’s account with the narration: “Cybersecurity Levy.”

3. Financial institutions will deduct the levy and remit it to the National Cybersecurity Fund administered by the Office of the National Security Adviser.

4. Deductions shall commence within two weeks from the date of the circular, May 6, and financial institutions must remit collected levies in bulk to the NCF account domiciled at the CBN monthly by the fifth business day of the following month.

5. Financial institutions have deadlines to update their systems to handle levy deduction and remittance. Failure to remit the levy can result in penalties, including a fine of up to 2% of a financial institution’s annual turnover.

Business

ICYMI: FG Gives Deadline To PoS Operators To Register With CAC

Published

1 day ago

May 7, 2024

Editor

The Corporate Affairs Commission has set a two-month deadline for Point of Sale operators in the country to register their agents, merchants and individuals, latest by July 7, 2024.

The Registrar-General/Chief Executive Officer, CAC, Hussaini Magaji, SAN, met with some fintech companies, also known as PoS, on Monday in Abuja, during which the agreement was reached.

Magaji said the measure aims at safeguarding the businesses of fintech customers and strengthening the economy, the commission stated via its X handle, tweeting as @cacnigeria1.

Magaji stated that the move complies with “Section 863, Subsection 1 of the Companies and Allied Matters Act, CAMA 2020 as well as the 2013 Central Bank of Nigeria’s guidelines on agent banking.”

The tweet partly read, “Hussaini Magaji, therefore, said that the timeline for the registration, which will expire on July 7, 2024, was not targeted at any groups or individuals but genuinely aimed at protecting businesses.

“Several speakers from the fintech industry pledged to collaborate with the Commission to ensure hitch-free implementation of the directive.

“Some of them, however, stressed the need for adequate and collective sensitisation to ensure that the exercise achieved the desired results.”

In his remarks, Tokoni Peter, the Special Adviser to President Bola Tinubu on ICT Development and Innovation, “pledged to ensure the smooth facilitation of the process in line with the Renewed Hope Initiative of the present administration.”

Present at the meeting were representatives of fintech companies, including Opay, Momba, Palm Pay, Moniepoint, Paystack, among others.

Aside from being an avenue for job creation, PoS operators play a significant role in financial transactions nationwide.

The move to compel the registration of the fintech companies with the CAC has come at a much-needed time as the companies have also been a key part of fraudulent transactions.

In its Annual Fraud Landscape (January to December 2023) report, the Nigeria Inter-Bank Settlement System has said that financial institutions lost about N17.67 billion to fraud in 2023.

It was also reported that the Web and PoS channels were the most exploited payment channels by fraudsters in 2023.

The count of Web Fraud decreased by 38 per cent and ATM fraud recorded a 64 per cent reduction from 2022 to 2023.