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African Development Bank Calls Off Proposed Loans to Nigeria, Instead Redirecting it to Specific Projects

By: Bhodemarz on October 31, 2017 / comment : 0 , , ,

The African Development Bank has called off a loan to Nigeria that would have helped fund the country's budget, instead redirecting the money to specific projects, a vice president at the lender said on Monday.
The African Development Bank had been in talks with Nigeria for around a year to release the second, $400 million tranche of a $1 billion loan to shore up its budget for 2017, as the government tried to reinvigorate its stagnant economy with heavy spending.
But Nigeria refused to meet the terms of international lenders, which also included the World Bank, to enact various reforms, including allowing its currency, the naira, to float freely on the foreign exchange market.
Rather than loan Nigeria money to fund its budget, the African Development Bank is likely to take at least some of that money and "put it directly into projects," Amadou Hott, African Development Bank vice president for power, energy, climate change and green growth, told Reuters in an interview during a Nordic-African business conference in Oslo.
Because prices for oil, on which Nigeria's government relies for about two-thirds of its revenues, have risen and the naira-dollar exchange rate has improved, the country is relying less than expected on external borrowing, Hott said.
No one from the Nigerian finance ministry was immediately available to comment.
Nigeria's 2017 budget, 7.44 trillion naira, is just one in a series of record budgets that the government has faced obstacles funding, pushing it to seek loans from overseas.
In late 2016, the AfDB agreed to lend Nigeria a first tranche of $600 million out of $1 billion. But negotiations over economic reform later bogged down, blocking attempts to secure the second tranche of $400 million, sources told Reuters then.
Now, AfDB's loans will be more targeted, Hott said.
"It's hundreds of millions of dollars, just in one go, that we were supposed to provide in budget support, but we will move into real projects ... " he said.
Earlier this month, the head of Nigeria's Debt Management Office said the country is still in talks with the World Bank for a $1.6 billion loan, which will help plug part of an expected $7.5 billion deficit for 2017.

The administration is also trying to restructure its debt to move away from high-interest, naira-denominated loans and towards dollar loans, which carry lower rates.

Source: VOA News

Adeosun: We have to spend $3bn refinancing debts inherited from Jonathan

By: Bhodemarz on October 25, 2017 / comment : 0 , ,

Kemi Adeosun, minister of finance, says the federal government will spend $3 billion refinancing debts from the administration of former President Goodluck Jonathan.
She said this while featuring on an Arise TV programme.
The minister also said the $5.5 billion loan which President Muhammadu Buhari is seeking to get the approval of the national assembly for, is made up of two components – refinancing of heritage debts to the tune of $3billion and new borrowing of $2.5 billion for the 2017 budget.
“Let me explain the $5.5 billion borrowing because there have been some misrepresentations in the media in the last few weeks. The first component of $2.5 billion, represents new external borrowing provided for in the 2017 Appropriation Act to part finance the deficit in that budget.
“The borrowing will enable the country to bridge the gap in the 2017 budget currently facing liquidity problem to finance some capital projects.
“For the second component, we are refinancing existing domestic debt with the US$3 billion external borrowing. This is purely a portfolio restructuring activity that will not result in any increase in the public debt.”
The minister said it is puzzling that Nigeria’s debt rose from N7.9 trillion in June 2013 to N12.1 trillion in June 2015, despite the fact that only 10% was allocated to capital expenditure when oil price exceeded $120 per barrel.
“Under this dispensation, we are not borrowing to pay salaries. If all we do is to pay salaries, we cannot grow the economy. This administration is also assiduously working to return Nigeria to a stable economic footing.
“In light of this, the government adopted an expansionary fiscal policy with an enlarged budget that will be funded in the short term, by borrowing.”
She said the $5.5 billion foreign borrowing was consistent with Nigeria’s debt management dtrategy, which main objective is to increase external financing with a view to rebalancing the public debt portfolio in favour of long-term external financing.
“Nigeria’s debt to gross domestic product (GDP) currently stands at 17.76% and compares favourably to all its peers. The debt to GDP ratio for Ghana is 67.5%, Egypt is 92.3%, South Africa (52%), Germany (68.3%) and United Kingdom (89.3%),” she said.
“Nigeria’s debt to GDP ratio is still within a reasonable threshold. This administration will continue to pursue a prudent debt strategy that is tied to gross capital formation. This will be attained by driving capital expenditure in our ailing infrastructure which will in turn, unlock productivity and create the much-needed jobs and growth.”

Source: The Cable

Why borrowing $5.5 billion externally is good for Nigeria – DMO

By: Bhodemarz on October 20, 2017 / comment : 0 , , , ,

The Debt Management Office on Thursday explained that the proposed borrowing of N5.5 billion from external sources by the Nigerian government is a good initiative.
President Muhammadu Buhari recently wrote the National Assembly seeking permission to raise the funds.
The $5.5 billion is in two phases, the DMO explained.‎ The first represents “$2.5 billion represents new external borrowing provided for in the 2017 Appropriation Act‎” while the second represents “$3 billion External Borrowing that will be used to repay some of the existing domestic debt.”
The $2.5 billion proposed Eurobond, will be used to finance critical road and rail projects included in the 2017 Appropriation Act,” the agency said in a statement sent to PREMIUM TIMES‎.
It also listed ‎four reasons such funds were better raised externally.

Read the full DMO statement below.
DMO Clarifies Position on USD5.5 Billion External Capital Raising
The Debt Management Office, DMO, in a recent Press Release has clarified the plans of the Federal Government to source for capital from the International Financial Markets. In the Press Release, the DMO stated that the proposed $5.5 billion comprises of two components: $2.5 billion new borrowing and $3 billion for refinancing.
$2.5 Billion
The first component of $2.5 billion represents new external borrowing provided for in the 2017 Appropriation Act to part finance the deficit in that Budget. It will be recalled that the 2017 Appropriation Act provided for new External Borrowing ofN1.067 trillion or $3.5 billion at an Exchange Rate of $/N305. Out of this amount, $300 million has been raised through a Diaspora Bond that was issued in June 2017 leaving a balance of $3.2 billion out of which $2.5 billion is to be sourced through a Eurobond Issuance. The $2.5 billion proposed Eurobond, will be used to finance critical road and rail projects included in the 2017 Appropriation Act. Some of the projects are: construction of a Second Runway at the Nnamdi-Azikwe International Airport; rail projects including Lagos-Kano, Calabar-Lagos, Kano-Kaduna, Ajaokuta-Itakpe-Warri, Kaduna-Idu; and the Bodo-Bonny Road with a Bridge across the Opobo Channel.
These infrastructural facilities will lead to job creation and improve the climate for business thereby contributing to economic growth.
$3 Billion
The DMO also provided further clarifications on the issue of the proposed $3 billion External Borrowing that will be used to repay some of the existing domestic debt. In the explanation, the DMO stated that this was purely a portfolio restructuring activity that will not result in any increase in the public debt as it is simply an exchange of one type of debt (Domestic) for another (External). The DMO stated that the Domestic Debt Stock as at June 30, 2017 included about N3.7 trillion of Nigerian Treasury Bills (NTBs) with tenors of less than one year and at interest cost of about 17 per cent p.a.
The short term nature of the NTB stock and the high interest rate expose the public debt to refinancing risk and high Debt Service Costs. By converting them to External Debt, the tenor will be extended to at least five years while the Interest Cost will drop to about 7 per cent p.a. The savings in Debt Service from this exercise is estimated at over N90 billion p.a.
Benefits of these External Capital Raising
i.     Reduce Debt Service
Reduce the Interest Cost of Borrowing as external borrowing in US Dollars is much cheaper at about 7 per cent p.a. compared to up to 17 per cent p.a. in the domestic market.
ii.    Increase Stability in the Debt Stock
Extend the tenor profile of the debt stock as longer-dated external debt is used to replace short term domestic debt. This would make the debt portfolio more stable, thereby reducing refinancing risk.
iii.   Increase in borrowing space for the private sector
The pressure in the domestic market created by the large government borrowing will be reduced. This will create more space for borrowing by the private sector which will enable them contribute to the growth of the Nigerian economy.
iv.   Increase in Nigeria’s External Reserves
External Borrowing represent foreign currency into the nation’s External Reserve thereby allowing for a stable exchange rate for the Naira.
Other Considerations
The proposed $2.5 billion new borrowing through Eurobonds to part finance the deficit in the 2017 Appropriation Act and the refinancing of existing domestic debt through external capital raising of $3 billion, are consistent with Nigeria’s Debt Management Strategy, whose main objective is the increase external financing with a view to rebalancing the public debt portfolio in favour of long-term external financing in order to reduce the cost of debt and lengthen the maturity profile.
The DMO added that in contracting external debt, a conscious effort is made to exhaust all opportunities available from the concessional sources in order to reduce the level of External Debt Service.
Furthermore, all borrowings are approved by the National Assembly and are included in the Annual Budgets and the Medium Term Expenditure Framework (MTEF).

Source: premiumtimesng

Foreign debt, democracy and checks and balances, by Nonso Obikili,

By: Bhodemarz on October 20, 2017 / comment : 0 , , ,

Democracies have been on the wrong end of the publicity stick in recent decades. The rapid economic expansion in relatively autocratic countries like China, Singapore, and South Korea in the 1970s has implanted the idea that democracies might not be best suited for rapid economic growth. Of course, most conveniently ignore the autocracies like Zimbabwe, Venezuela, and Cuba where things go horrible wrong. Still within this context, the argued advantage for democracies is they prevent the worst from happening. While they may not allow too much flexibility in policy, they prevent the kinds of disastrous decision-making that lead to economic collapse. In essence, the “check and balances” prevent policy makers from theoretically destroying the economy through bad decisions.
Nigeria has been a democracy since 1999. At least we have been a democracy in the sense that we have elections, there is rule of law, and there are institutions that are supposed to guard and protect Nigerians and their future. You can argue about how democratic we are in practice but at least we are somewhat better off than we were thirty years ago. Our freedom house score, a ranking of democracies, is 50, which is a bit of a way from the ideal democracy at 100, but is also not as bad as the least democratic countries which have scores around one. The question then, in terms of our democracy’s ability to prevent policy makers from making the worst decisions, is “are we really democratic?”
We can think of this question in the context of the recent debt debate. Just a quick recap, in the face of collapsing revenue due to the crude oil price crash in 2014, the federal government continued its spending spree, opting to bridge the gaps with debt instead. The result has been an acceleration in debts to the point where debt servicing costs now consume about sixty percent of actual revenue. Not satisfied with the precarious situation, the federal government is proposing to continue the spending boom, and is looking to raise an additional $5.5bn from external sources.
Ironically, we have been in this situation before, when we were not a democracy, but during the era of military dictatorships. In the 1980s, faced with the same scenario of collapsed crude oil prices, the military regimes opted to keep the government spending policy going and closed the gap with debt instead. The early 1980s were the period of “jumbo” loans from various external sources. In hindsight we know those decisions were bad as the loans were frittered away, and the debt went on to cripple the activities of government for the next two decades. The country would not get out of that problem until the debt forgiveness deal in 2005, almost 25 years later.
We were not democratic back then and the institutions which should have prevented that outcome did not really exist. There was no debt management office to monitor and publicize actual debts. There was no national assembly to check the actions of the military regimes. The civil society and press were also not in very good shape, in terms of their ability to go against the military regimes.
This time around we are democratic and have all these institutions. Will we end up with the same scenario, with debt problems that cripple government for decades, or will our institutions act to ensure a different and better outcome this time around?
The federal government typically thinks in four years cycles, and on issues such as long term debt problems, it is expected that they will lean towards the path of immediate benefits and not think too deeply about the longer term costs. This is where the other institutions, who are theoretically supposed to take a longer-term view of things, have to stand up and demonstrate that they know their role in democracies. Specifically, the national assembly is the institution charged with protecting the long-term interests of Nigerians and they must demonstrate that we are indeed a democracy, and we are capable of avoiding the worst decisions.
The question of whether this new request to seek for $5.5bn in foreign loans is economically sound or not is not really what is at stake. The real matter is ensuring that we do not fall into the same debt spiral like we did under the military in the 1980s. If we do, then it would mean that our democracy is really only just on paper.

Nonso Obikili is an economist currently roaming somewhere between Nigeria and South. The opinions expressed in this article are the author’s and do not reflect the views of his employers.

 Original piece via guardian.ng


PDP asks N/Assembly not to approve Buhari's $5.5 bn loan

By: Bhodemarz on October 13, 2017 / comment : 0 , , ,

The Peoples Democratic Party (PDP) has asked the National Assembly not to approve the $5.5 billion foreign loan being sought by the President Muhammadu Buhari-led government.
The party explained that the move was an attempt by the ruling All Progressives Congress (APC) to plunge Nigeria into further debt and consciously mortgage the future of the nation.
The PDP in a statement Wednesday night by its national publicity secretary, Prince Dayo Adeyeye asked the government to account for all the monies it borrowed since assumption of office.
"As major stakeholders in the Nigerian Project, we are worried that if the National Assembly does not stop this latest demand for foreign loan, the money when released, will go the way of other loans obtained in the last two years without any tangible result to show for it.
"For emphasis, we are dismayed at the rate by which the APC is plunging the nation into debt through local and foreign borrowingwithout concomitant developmental projects in any sphere of the nation's ‎economy to justify the huge borrowing.
"The figure released recently by the Debt Management Office (DMO) stating that the nation under the administration of the APC government in the last two years of being in office, has borrowed N7.51 trillion. It is mind-boggling.
"Mind boggling because all round infrastructural decay has now reached alarming proportions. The roads have deteriorated, the state of power supply has become worse and there is no increase in wages to match the skyrocketing inflation.
‎"We are constrained to ask the government of President Muhammadu Buhari to explain to Nigerians what his government has done with the
several huge sums borrowed in the last two years in the name of financing infrastructural development in the country.
 "The data shows that since President Buhari was sworn-in, the Nation's Debt has risen by 61.96% in only two years," the PDP said.


Read more at dailytrust.com.ng

Re: Kemi Adeosun’s ‘Deconstructing The Debt Story’ By Oluseun Onigbinde

By: Bhodemarz on October 10, 2017 / comment : 0 , , , , ,

It is important that public officeholders clarify the issues that citizens are distraught about. One such issue has been the case of rising public debt. Kemi Adeosun's piece comes in the context of the well-rehashed situation that the current administration met upon taking office. With its hail of campaign promises without counting the cost, the Buhari-led government pushed itself into a tyranny of expectations. I guess Nigerian politicians will be more mindful when they make promises, as the campaign pamphlets had programs with at least N19tn yearly to fulfill.
We must also understand that the issue of debt is not treated with consternation, as Kemi Adeosun wrote. It is a right argument that requires our interest in inter-generational equity. If we are amassing the debt that will be a burden on future revenues, it is important to demand more transparency on what exactly we are bequeathing the future and the economic viability of it. Nigeria paid $13bn to settle the Paris Club of creditors mostly tied to frivolous infrastructure that had no economic impact on the current generation.
It must also be said that this administration has not been more transparent than previous governments as regards debt numbers. I reckon that DMO has to be one of the best-managed government institutions with how it maintains an updated register of the national debt. Several officers who worked at state governments where it is nearly impossible to get fiscal numbers and currently at the federal level are surprised at this level of transparency, but we must be vigilant that this not rolled back in a bid to silence varied discussions. Despite the anti-corruption crusade, it has become impossible to get a detailed breakdown of the N1.2tn capital releases as claimed for 2016 budget cycle. Except for NNPC that started its monthly operations and financial reports, this administration has not been more transparent than previous governments, and it needs to sincerely improve this. The Buhari-led government has not provided details of capital releases on the project basis, no bold attempts on open contracting, never applied punitive sanctions to those indicted in Auditor-General reports or any tangible thought on campaign financing, a drain on public resources at all levels. So which improved transparency are we talking about?
Diving into the numbers, the unfortunate thing about the current fiscal management is how it has not shown any belt-tightening approach in the way public officers parade themselves. We don’t know any radical approach to reduce aides of public officers nor has there been any interactive party-level discussions on the National Assembly to rein its cost. In a budget approved during the recession, it is still littered with purchase of cars at N25bn, computer software acquisition at N9bn etc. One would have expected that beyond the serial removal of ghost workers that has not lead to a single prosecution and has always been a public relations stunt for successive governments, the entire Nigerian budgets will solely prioritize not a cluster of administrative capital projects but developmental capital projects with direct impact on the people. The ballpark figure of N1.2tn thrown around has no public details. How can such amount be spent with serial commissioning of projects since the Kaduna-Abuja rail? This means Nigerians are probably not seeing it or certain persons are economical with the truth. Well, I can easily be proven wrong with clear definition of capital projects funded. We continuously hear of the Efficiency Unit as a “placeholder point” but no real understanding of its operations and savings that helped government fulfill regarding bureaucracy.
I am happy that with Kemi Adeosun’s argument, the Federal Government clearly sees where Nigeria’s fiscal problem lies. The critical challenge has always been the size of public revenues, too low for a country of our population and economic size. This is why we must not fetishize our debt-to-GDP numbers currently at 17.1%. That Nigeria has a huge GDP and has not been able to maximize public revenues from it attest to the poor appraisal of the current GDP structure or the approach we have taken that poorly discourage tax payments. From 29% debt-to-revenue ratio in 2014, the Federal Government has moved to 44.7% in 2016. This means that from every 100 Naira that FG receives, it spends 44 Naira on servicing debts. In a recent Pew Research study, it was stated that as at 2015, Brazil spent 42% of its revenue to service debts, being the highest in the world. This shows that while Nigerian debt size might be low, the cost of servicing debt is high among its peers. We must not fall for low debt-to-GDP figures; it is the single incomplete story. Bond interests have not toppled 16% in past year, and the badge that the Nigerian government flashes is that portfolio investors now savor our sweet debt. Who would not with cool interest rates and guaranteed exchange rate exits? The Nigerian government is running a cool social security for the Nigerians who can afford its debt, distorting incentives for the growth of private capital.
It is also unfortunate that FG is also crowding the banks of retail savers launching bond issuance capped at 12-13%. This excludes its Federal Government debt to CBN that has risen from N866bn in February 2015 to N5.189tn as at July 2017. Imagine a scenario at when there are multiple options of bonds and treasury bills at tax and risk-free rates, which bank would borrow to the private sector? In the 2016 Budget Implementation Report by the Budget office, it was stated that “Credit to government grew by 27.44% when compared with the end September 2016 figure of N3.66 trillion….Credit to the private sector (Cp) slumped by 2.93% to ₦21.98 trillion at end-December 2016 from ₦22.65 trillion at end-September 2016 indicating crowding out .”
Think of a country with the debt to the government at a faster pace than credit to the private sector that also needs private capital to reach growth rates of 7% in 2020 as stated in its Economic Recovery and Growth Capital (ERGP). It is also important that government rates have been private lending benchmark in Nigeria now around 25%. With this administration, the only business in town as been government. This administration made a chore out of commissioning private plants but underneath the numbers is a frustrated Nigerian who can’t get capital from the bank because fiscal management have disincentivized this. This is why conversations of debt should not be in size. It is how does FG reduce the cost of borrowing and most especially the domestic offerings that now touches every upper and middle class bracket of the society.
Nigeria’s debt service costs will reach N1.6tn in 2017, closing on its personnel costs of N1.8tn, this is the worry that should be triggering debates on well-structured quantitative easing not government out-borrowing everyone in the space. The current approach of substituting local debt with dollar-denominated debt is also faulty. What should be the purpose of raising external debt? With oil being our main foreign earner at 95% of receipts, is Nigeria not supposed to be borrowing for infrastructure or making investments to correct this imbalance that puts Nigerian currency on a wrong footing every time that oil markets go into a dip?
As stated in the Economic Growth Recovery Plan “Nigeria’s peers raise an average 16 per cent of GDP from non-resource taxes; Nigeria raises just 3 per cent (2015).” The plan also states a target to “increase tax to GDP ratio from the current 6 per cent to 15 per cent during the period.” With a targeted GDP of N137.331tn in 2020, we are talking about tax revenues of N20tn, which is nearly eight times the current total non-oil revenue taxes. This means Nigeria needs to at least multiply its taxes eight times to meet the 2020 target. Despite the efforts shown by Kemi Adeosun in the piece, it shows that it will always be inadequate without a proper reflection on why do we have a huge GDP but little taxes? What is the structure of the GDP that makes it impossible to collect taxes? Has the Nigerian government shown enough faith in the management of public taxes that make it more deserving? These are the conversations that need to be honked because the current approach is a reflection of growth rates in the past and shows that without robust thinking our public revenues will not rise.
I believe the debt debate is rooted in the fact that Nigerian government is taking the escapist approach, racking up debt in quick numbers, rapidly forgetting where before exit of creditors. This escapist approach of taking gradual steps on revenue but giant footsteps on debt is what is being questioned. Nigerian leaders in 18 months have shopped everywhere - AfDB, World Bank, retail savers, bondholders, Eurobond, portfolio investors, Sukuk bonds, treasury bills to pay its own cost. A dive into its budget implementation reports shows that its numbers doesn’t add up such as how did Nigeria finance actual deficit of N1.02tn for 2016 after counting at bond receipts. How is FG also entitled to Paris Club refund and what is the source of the N1.64tn extra-statutory fund provided to states?
In fact, most of the projects tied to these debts especially rail do not have any known economic importance and are not fastened to the idea that such projects should be self-liquidating. They are mainly for political expediency, and this is why this debate is necessary. The Nigerian government should provide effective plumbing in raising revenues, rein on debt service costs with favor for long-term bonds as well as rates that consider private sector lending, evidently reduce overheads and administrative capital items and overall unleash transparency on every issue. Here we see monetary authorities (CBN) limiting liquidity in a bid to keep Naira at a preferred value by mopping up funds in circulation through borrowing, the fiscal authorities (government) keeps feasting on expensive debt while everyone except their bondholders leans through. The Nigerian government needs a lot of rigorous thinking as well as caution.

Seun Onigbinde is the co-founder of BudgIT. He tweets via 


Source: saharareporters.com

Deconstructing Nigeria’s Debt Narrative, By Kemi Adeosun

By: Bhodemarz on October 09, 2017 / comment : 0 , , ,


National debt is an emotive issue, as well as an economic one. The thought of saddling future generations with unserviceable debt, is not conscionable and certainly not part of the President Muhammadu Buhari-led-administration’s agenda. It is therefore, worthy of an intervention on my part to explain the history, the short-term strategy and the medium to long term outlook for our economy.

It bears repeating that anyone who thought that the Nigerian economy we inherited in 2015 was in need of minor adjustment was sadly deluded. Oil prices had plunged from a height of over US$120 to a low of US$28 per barrel, yet the country had foreign exchange reserves of US$28.34 billion (having declined by US$16 billion in the two years to June 2015 from a high of US$44.95 billion). Despite just 10 percent of the budget allocated to capital expenditure, debt had (in a period of unprecedented oil earnings) inexplicably risen from N7.9 trillion in June 2013 to N12.1 trillion in June 2015. Depending on the candour of the commentator, the outlook was at best, ‘challenging’ and at worst, ‘bleak’.
However, this administration set to work, with a vision, not just to return Nigeria to a stable economic footing, but to deliver a fundamental structural change to the economy that would reduce our exposure to crude oil. We approached this with a number of binding constraints that must be understood. One of these was that mass public sector retrenchments to create room for capital spending was not an option. Politically, it offended the principles of the All Progressives Congress (APC) and economically, it would worsen an already precarious economic situation and cause untold hardship. In light of this, an expansionary fiscal policy was adopted with an enlarged budget which would be funded in the short term, by borrowing.
As the economy recovered and returned to growth, borrowings would be systematically replaced by revenue, which is the fundamental missing piece in Nigeria’s economic jigsaw. This does not mean that we would ignore waste, which has been a core focus of our efforts. Through the implementation of the Efficiency Unit and enrolment of Ministries, Departments and Agencies (MDAs) on the Integrated Payroll and Personnel Information System (IPPIS), we have successfully saved N206 billion in payroll costs using technology to drive the cleansing process, with the removal of 54,000 fraudulent or erroneous entries. This was attained without the negative social impact of retrenchment.
As we put our plans together, our economic modelling team correctly forecast that in the short term, there would be an acceleration in the accumulation of debt and an increase in debt servicing costs. However, this would be ameliorated by correcting the low tax to Gross Domestic Product (GDP) ratio through revenue mobilisation, releasing funds to sustain investment in capital and repaying the debt. Mobilising revenue aggressively is not advisable, nor indeed possible, in a recessed economy but as Nigeria now reverts to growth, our revenue strategy will be accelerated. This is being complimented by a medium-term debt strategy that is focusing more on external borrowings to avoid crowding out the private sector. This would also reduce the cost of debt servicing and shift the balance of our debt portfolio from short term to longer term instruments.
The subject of inherited debt must also be drawn firmly into the mainstream of this discourse. Analysts will recall that in July 2017, the Federal Executive Council (FEC), approved that N2.7 trillion of hidden liabilities would need to be addressed. These obligations include salaries, pensions, oil importation, energy bills and contractor payments, some of which date back to 2006. It is instructive to note that the recent Academic Staff Union of Universities (ASUU) strike, that crippled our tertiary institutions, is one of many examples of commitments made by previous administrations that were saddled on this team. ASUU’s dispute relates to an agreement reached with the federal government in 2013 (when oil prices fluctuated between US$102 and US$116 per barrel), which was not honoured. On a daily basis, previously undisclosed obligations are uncovered. The most recent of which relates to oil importation in 2014 and is currently being dimensioned – unpaid and secured by a hitherto undisclosed sovereign note. All of these, while declared public debt was increasing by N5 trillion in two years despite records highs in revenues (in relative terms) from oil sales.
This administration believes that Nigerians have a right to the truth. The figures recently released by the Debt Management Office (DMO) and much debated indicates that while total public debt in dollar terms has remained relatively stable since 2015, our debt, when denominated in naira, has increased from N12.1 trillion to N19.6 trillion. However, this belies the impact of the recent devaluation of the naira on the external obligations we inherited, which accounted for N1.63 trillion of this increase. Also, to be considered, is the effect of the compounding of debt service on the inherited domestic debt, which was largely short dated. The administration has always been transparent and the reward for transparency should not be consternation but rather, patient and informed analysis. Nigeria’s debt to GDP currently stands at 17.76 percent and compares favourably to all its peers.
This administration will continue to pursue a prudent debt strategy, tied to gross capital formation. This will be attained by driving capital expenditure in our ailing infrastructure which will in turn, unlock productivity and create the much-needed jobs. We accept that in the short term, there will be dislocations as our revenue efforts will, by definition, lag both our expenditure and debt obligations, creating a fiscal deficit. This will be particularly pronounced in the preliminary years of pursuing this strategy; however the dislocation will be mitigated by the nation’s response to the revenue effort. No economy, anywhere in the world, can deliver sustainable long-term growth, without volatility if tax revenue is at 6 percent of GDP. This must be addressed. It is not optional and the true risk to future generations of Nigerians is that they grow up in an environment where tax avoidance or evasion is viewed as acceptable. We are already seeing some performance improvement in our non-oil revenues. Particularly, year to date performance of Customs Revenue, Value Added Tax (VAT) and Companies Income Tax (CIT), is 19 percent (N408.06 from N342.79 billion), 18 percent (N634.89 from N539.46 billion) and 11 percent (N838.45 from N757.40 billion) higher respectively, when compared to the same period in 2016. This does not mean that we have succeeded. Revenue remains considerably short of our ambitions and must be increased exponentially over the coming years but it is a sign that it can be done.
It must be recalled that the President Muhammadu Buhari-led administration has expended more on capital projects than any previous one, despite tight fiscal conditions. Our focus on capital is important as it will underpin our medium and long term needs so the impact may not be immediately felt. But there are early and encouraging signs; major construction will resume on twenty-five roads across the key road networks/sections (A1-A4), which cuts across the six geopolitical zones, following the successful raising of over N100 billion under the Sukuk debt issuance programme. Our capital releases to Power, Works and Housing in 2016, is estimated to have created 193,469 jobs, with 40,429 being direct jobs and 153,040 indirect jobs. The many thousands of staff of some of our major contractors, who had been furloughed since their last payment receipts in 2014, will attest to the impact of government policy. In agriculture, our policies on rice and fertiliser have seen the resurrection of many rice mills and blending plants and have created a new value chain in industries that were previously import driven with over 300,000 farmers fully engaged.
It must also be recalled that this administration is working harder on revenue generation than ever before. Blocking leakages, demanding efficiency and even breaching previous ‘no-go’ areas like tax compliance for our higher earners, as there are no sacred cows. All these efforts are aimed at ensuring that Nigeria has an economy that distributes wealth and opportunity fairly among her citizens. This commitment to equity should equally provide assurance that we will never burden future generations with the responsibility for paying for past mistakes; rather, we will bequeath a vibrant and reformed economy. We are resolutely convinced, based on empirical data that our collective efforts will deliver a Nigeria that works for all Nigerians and in all global economic conditions.

Kemi Adeosun is the Nigerian minister of Finance.

Source: premiumtimesng.com

FG to issue $2.5bn Eurobond for capital projects

By: Bhodemarz on September 29, 2017 / comment : 0 , ,

The Federal Government will issue Eurobond to raise $2.5 billion before the end of 2017 to fund critical infrastructure in the country, the Debt Management Office (DMO) has said yesterday. This is just as the central government advocated for an urgent action towards economic development and diversification as the country gradually exits recession. DMO’s Director-General, Ms. Patience Oniha, stated this at the 2017 Nigerian Debt Capital Markets Conference & Awards organised by the FMDQ OTC Securities Exchange in Lagos.
Oniha said that the borrowing would enable the country bridge the gap in the 2017 budget presently facing liquidity problem to finance some capital projects. She said that the proposed Eurobond issuance would complement the $1.5 billion raised from the international market in March 2017.
Oniha stated that the nation’s Treasury Bills portfolio presently stood at N3.7 trillion, noting that it planned to refinance it with foreign borrowing to reduce pressure on the domestic market. She said that Nigeria needed to build stronger and responsive institutions that could support infrastructure agenda of the government.
The DMO boss added that government had proposed to channel new borrowings into capital investments instead of consumption. “The debt ratio is not tangible and adequate components of borrowing because it is not going into funding others than capital investment.
Let us channel new borrowings into capital investment instead of consumption,” Oniha said. On the N100 billion Sukuk Bond, she said that the Federal Government had identified 25 road projects to be funded with the proceeds.
She said that among the roads listed was Ore–Sagamu road, Kaduna bypass, Enugu Port Harcourt road, Kano–Maiduguri, Benin– Lokoja road, among others. According to her, government has also decided to finance other Trunk A roads that would provide support that is needed to accelerate nation’s developmental goals.
She said Nigeria needed to build stronger and responsive institutions that can support infrastructure agenda of the government. “We need to build the business in terms of products that meets specific needs of investors,” she stated. Oniha said that the acceptance of the offer was an indication of the viability of the instrument as an investment option as well as a demonstration of utmost faith in the economy. Speaking earlier, Vice President Yemi Osibanjo called for an urgent action towards economic development and diversification as the country exits recession.
Osibanjo, who was also represented by Oniha, said that assessing the debt capital market was needed to bring the desired economic growth and diversification.He said that with the growing population, the private sector participation was also needed to complement government efforts in area of infrastructure development.
The vice president stated that the private sector was efficient in handling projects anywhere in the world. Osinbajo added that the current determination of the Federal Government on the ease of doing business was to enable more investment flow into the country.

“Ease of doing business makes it easy for business start-ups to grow their business,” Osinbajo said. The Finance Minister, Mrs. Kemi Adeosun, noted that government was restructuring the economy to give nation’s development a leap.

Source: newtelegraphonline.com

Nigeria asks Senate to amend law for govt to settle 2.7 trillion naira debt

By: Bhodemarz on September 29, 2017 / comment : 0 , ,

Nigeria's government has asked parliament to amend its spending law to enable a debt program to settle 2.7 trillion naira ($8.6 bln) worth of obligations including pensions and salary arrears, according to a letter from Vice President Yemi Osinbajo.
The letter, read out in the Senate on Tuesday, requested amendments to the law, which stipulates allocation of government spending, to allow Nigeria to fund recurrent expenditure from proceeds of the debt rather than just capital projects.
Nigeria's Fiscal Responsbility Act states that proceeds of government borrowings can only be applied towards capital expenditure. Osinbajo said the amendment was to provide the legal backing for the use of the debt to meet the obligations.
The vice president sent the letter to the Senate last month while President Muhammadu Buhari was on medical leave in Britain. The letter was read out after the Senate reconvened following a seven-week recess.
Africa's biggest economy grew out of recession in the second quarter as oil revenues rose, but the pace of growth was slow, suggesting the recovery is fragile.
Osinbajo's letter said the obligations had become inimical to government plans to revive the economy through the provision of modern infrastructure and settle pension and salary arrears dating back five years.

Finance Minister Kemi Adeosun has said the government plans to refinance $3 billion worth of treasury bills denominated in naira with dollar borrowing to lower costs and improve its debt position.

Source: reuters.com

ANALYSIS: Most Nigerian States Accrue Debt That Far Outweigh Revenue

By: Bhodemarz on September 26, 2017 / comment : 0 , , , ,

Today, we will look at the revenue figures for the states and compare them to the debt figures. The analysis will be by GPZ. But before then, let us analyse the Debt Per Capita. i.e. the debt stock (excluding cash) divided by the state population. The attached chart shows the debt per capital of states (North & South) based on the projected population figures of 2011/2016.
NORTH CENTRAL
The Debt Per Capita of states in the North Central grew by 98% from N10,600 in 2011 to N21,000 in 2017. With the biggest from Nasarawa State.
NORTH EAST
Debt Per Capita grew in the North East by 181% from 4,800 in 2011 to 13,500 in 2017. The biggest contributor to this is Borno State.
NORTH WEST
Debt Per Capita in the North West grew by 206% from 3,500 in 2011 to 10.700 in 2017. The biggest contributor being Kano State.
SOUTH EAST
Debt Per Capita grew by 102% from 8300 in 2011 to 16800 in 2017 due mainly to the contribution of Ebonyi with its 12% reduction.
SOUTH SOUTH
In the South South, Debt Per Capita grew by only 38% from 29,000 in 2011 to 40,000 in 2011 on the back of Bayelsa’s good performance.
SOUTH WEST
Debt Per Capita grew by 193% from 10,400 in 2011 to 30,500 in 2017. Osun State recorded over 900% while Oyo State recorded over 607%.
RANKING OF DEBT STOCK
In 2011, the top 6 debtors accounted for 50% of debt stock while in 2017, they account for only 40%. What this shows is that in later years (2016 – 2017), the debt was more broadly distributed that was the case in 2011. The Chart below shows the top 10 States with the worst debt stock ranking & the top 10 States with the best ranking. You can see clearly that Osun State moved up 24 places from 28th in 2011 to 4th in 2017. While Ebonyi State moved down by 19.
Lagos, Delta, Cross River & FCT remained in the top 6 from 2011/2017. Bayelsa & Rivers exited replaced by Osun & Akwa Ibom.
NORTH CENTRAL
75% of Total Revenue is from FAAC. with Nassarawa State being the highest with 89%. (Highest % increase in debt).
NORTH EAST
86% of revenue is from FAAC. With Borno and Yobe State recording 93% and 91% respectively.
NORTH WEST
In the North West, 79% of revenue is from FAAC with Kebbi State and Jigawa State having the biggest percentages at 91%.
SOUTH EAST
75% of revenue is from FAAC. The highest is from Ebonyi State with 92%. The highest IGR is from Anambra State with 33%.
SOUTH SOUTH
64% of revenue in the South South is from FAAC with the highest from Bayelsa State at 88%. The highest IGR is from Rivers State at 51%.
SOUTH WEST
Courtesy of Lagos State and Ogun State, South West has the lowest FAAC at 32% with IGR at 79% & 78% respectively. Highest FAAC is Ekiti State.
Note: By “Highest FAAC”, I mean highest FAAC RATE compared with IGR.
In the meanwhile, let’s compare the Debt Stock to the Total Revenue. Before then, a few words about “Debt Sustainability”. Debt Sustainability analysis is the acceptable standard of measuring the ability of a Country or State to sustain its debt.
There are mainly 3 ways of measuring Debt Sustainability: 1. Debt to GDP 2. Debt to Revenue 3. Debt Service to Revenue
1. Debt to GDP 2. Debt to Revenue 3. Debt Service to Revenue
2. Debt to Revenue 3. Debt Service to Revenue
3. Debt Service to Revenue
The first one (Debt to GDP) is an “Output Based Indicator”. While the last two are basically “Revenue Based Indicators”. The last debt sustainability analysis for Nigeria was done for 2016 & can be downloaded on DMO site. For us to analyse debt sustainability of States by Output, we would need the GDP for States. NBS does not provide this yet.
This means we are left with using the Revenue Indicators: Debt to Revenue and Debt Service to Revenue for the analysis. I decided to go with Debt to Revenue mainly because the data required for such analysis is readily available.
A few things to note. The FG established different threshold for measuring its debt according to the different indicators. So for instance, threshold for Debt to GDP is 56% based on “Peer Grp” factoring. While Threshold for Debt to Revenue is 350%.
In other words, the debt sustainability of any State will be considered high if it is within the country specific threshold. According to the DMO, debt to revenue of FGN, States and FCT looks fairly okay because it stood at 292% (lower than 350%.)
Note: This is a combination of all the States (including FG & FCT). If FG alone is considered, the projection is 395.3%.
My analysis, therefore, focuses on showing the debt to revenue per State & specifically the States that cross d 350% threshold. The attached Chart shows the debt to revenue per State. For Northern States and for Southern States.
Among the 36 States, 5 States crossed the 350% Country Specific Threshold and they are: Osun Ekiti Cross Rivers
Osun State
Ekiti State
Cross Rivers State
Imo State
Plateau State
Please note that for the FCT, it is inclusive as I don’t have the records of IGR. So the analysis is based mainly on FAAC. Now whether you accept this methodology is irrelevant. What’s relevant is knowing how debt sustainability for states is measured.
Yinka Ogunnubi is a finance professional based in Lagos @yinkanubi

Osun and Oyo Grew Their Domestic Debts by over 2000% Between 2011 and June 2017

By: Bhodemarz on September 22, 2017 / comment : 0 , ,

Report by Nigeria Bureau of Statistics (NBS).
Nigerian States and Federal Debt Stock data as at 30th June 2017 reflected that the country's foreign anddomestic debts stood at $15.05bn and N14.06trn respectively.
Further disaggregation of Nigeria's foreign debt showed that $9.67bn of the debt was multilateral;
$218.25m was bilateral (AFD) and $5.15bn from the Exim Bank of China credited to the Federal
Government of Nigeria (FGN).
Total FGN debt accounted for 74% of Nigeria's total foreign debt while all States and the Federal Capital
Territory (FCT) accounted for the remaining 26%. Similarly, total FGN debt accounted for 78.66% of
Nigeria's total domestic debt while all States and the Federal Capital Territory (FCT) accounted for the 21.34% balance.
A breakdown of the FGN domestic debt stock by instruments reflected that N7.56trn or 68.41% of the debt are in Federal Government Bonds; N3.28trn or 29.64% are in treasury bills and N215.99mln or 1.95% are in treasury bonds.
Lagos State has the highest foreign debt profile among the thirty-six states and the FCT accounting for 37% while Kaduna (6%), Edo (5%), Cross River (4%) and Ogun (3%) followed closely.

Similarly, Lagos State has the highest domestic debt profile among the thirty-six and the FCT accounting for 10.39% while Delta (8.04%), Akwa Ibom (5.18%), FCT (5.09%) and Osun (4.90%) followed in that order


Download the report here

Nigeria’s foreign debt up by 40% under Buhari — NBS

By: Bhodemarz on September 19, 2017 / comment : 0 , , ,

Nigeria’s total domestic and foreign debt stocks as at June 30 stood at about $15.1 billion and N14.1 trillion respectively, the National Bureau of Statistics said on Tuesday.
A review of the total foreign debt profile of the Federal and the 36 states governments and the FCT also shows a continuous rise since the coming of the present administration, from $10.718 billion in 2015, to $11.406 billion in 2016 and $15.047 billion in 2017.
Out of the current total figure of $15.047 billion, the Federal Government accounts for $11.106 billion, or about 74 per cent, while the 36 states of the federation and the Federal Capital Territory, FCT, Abuja owe about $3.94 billion, or 26 per cent.
The Federal and State government shares of the debt stock grew from $7.349 billion and $3.369 billion in 2015, to $7.84 billion and $3.568 billion in 2016, and $3.94 billion and $11.106 billion in 2017 respectively.
The NBS gave further disaggregation of the country’s foreign debt to include $9.67billion as multilateral debt; $218.25million as bilateral (AFD) and $5.15billion from the Exim Bank of China credit to the Federal Government.
Details of the debt figures show that the domestic debts figures of the 36 states of the federation and the FCT have continued to grow since 2015 under the present administration.
From about N2.503 trillion in 2015, the NBS data showed the figure rose to N2.959 trillion in 2016 before reaching the latest point of N3.001 trillion in 2017.
According to the statistics agency, out of the total N14.017 trillion national debt stock, the Federal Government accounts for about N11.058 trillion, or 78.66 per cent, against about N2.959 trillion, or 21.34 per cent by all the states and the FCT.
Further breakdown of the Federal Government domestic debt stock by instruments show that about N7.56 trillion, or 68.41 per cent were in bonds; N3.28 trillion, or 29.64 per cent in treasury bills, while N215.99 million, or 1.95 per cent went into treasury bonds.
Although the NBS did not provide the Federal Government domestic debt figures for 2015, figures obtained from the Debt Management Office, DMO, website on Tuesday showed that total domestic debt by instruments as at December 2015 stood at N8.836 trillion.
This consisted Federal Government bonds N5.808 trillion, or 65.73 per cent; Nigerian treasury bills N2.773 trillion, or 31.38 per cent, and treasury bonds of N255.99 billion, or 2.90 per cent.
Among the 36 states and the FCT, Lagos recorded the highest foreign debt profile, accounting for about 37 per cent of the states’ foreign debts, followed by Kaduna (six per cent), Edo (five percent), Cross River (four percent) and Ogun (three percent).
On the domestic front, Lagos State again took the lead, with the highest domestic debt profile among its colleagues and the FCT, accounting for about 10.39 per cent of the total figure, followed by Delta (8.04 per cent), Awa Ibom (5,18 per cent), FCT (5.09 per cent) and Osun (4.90 per cent).
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