- Experts, PDP Warn Buhari Against Borrowing $29.96bn
Economic and financial experts have warned President Muhammadu Buhari to exercise caution over his administration’s plan to borrow $29.96bn from external sources.
Similarly, the opposition Peoples Democratic Party called on Nigerians to stop Buhari from borrowing the amount and moving N180bn appropriated for special intervention to fund critical recurrent and capital items.
It also asked the two chambers of the National Assembly not to approve the request by the President.
But experts said on Wednesday that the amount was too huge and that the Buhari-led administration needed to tell Nigerians the specific infrastructural projects in exact locations across the country that the money would be used to finance.
A professor of Economics at the Olabisi Onabanjo University, Ago Iwoye, Sheriffdeen Tella, described the external borrowing plan of the Federal Government as too bogus.
Tella also asked the government to give a detailed breakdown of the proposed projects the funds would be used for, and specific plan of how it intended to pay back.
He said, “The money is too huge. We need to know the breakdown of the projects it will be used for. If it is for project financing whereby it is tied to specific projects in certain parts of the country, then fine. We need to also specify how much will be borrowed each year over the next three years of the borrowing plan.
“To me, the money is too huge. We do not manage our debts properly. We need to specify the repayment plan and what is going to be our income over the next five years or more. We are not good managers of resources; we are going to run into serious problems with this. If all these details cannot be given, then the National Assembly should approve just $10bn from it. Already, we know that we can’t borrow to finance recurrent expenditure. ”
An economic analyst at Ernst & Young, Mr. Bisi Sanda, also said the government needed to carry out reforms of its financial management system before embarking on such a borrowing.
Otherwise, he said it would be tantamount to borrowing to finance the ostentatious living of some corrupt government officials.
Sanda said, “Borrowing, in principle, is not wrong. But if you are using it to finance the corruption or ostentatious lifestyle of public officials, then there is a problem. It has been said some time ago that Nigerians only get 45 per cent value from all government expenditure. This is unlike in the USA where the people get 100 per cent value.
“Our public financial management must be transformed first. Seventy per cent of the budget in Nigeria goes on recurrent expenditure. What about the budget padding allegation and the huge bill of the legislature? We need to address the public financial management system, otherwise, we will find ourselves in the debt trap and leave huge debts for coming generations.”
The Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said there was nothing wrong with borrowing, but the government must specify the projects the money so raised would be used for.
“We need to tie this borrowing to specific infrastructural projects we know of in the country. We should say this rail line or highway will be financed with such an amount from the borrowing. This money must be tied to specific projects,” he said.
The Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said, “I agree with borrowing, but it must be tied to specific projects. The amount is a huge amount. That is about 140 per cent of our current external reserves.
“It is almost double the amount of the current external debt of the country. We need to know specific projects that the money will be used for. Until we know that, I can’t say it is a right step in the right direction.”
Reject proposal, PDP tells NASS
The PDP asked Buhari to explain to Nigerians what his administration had done with the recovered looted funds and how the 2016 budget was faring.
The spokesperson for the Senator Ahmed Makarfi-led faction of the party, Prince Dayo Adeyeye, stated this in a statement in Abuja on Wednesday.
Adeyeye said that the President must itemise what he intended to finance with the proposed borrowing of almost $30bn instead of lumping everything up in a coded term “and to plunge the nation’s future into a burden of debt”.
He said that the President’s approach could not be the preferred solution to the economic quagmire, which he alleged was created by the present government.
Adeyeye, a former Minister of State for Works, said, “This government budgeted N6.07tn for the 2016 fiscal year with a deficit of N2.22tn, and according to the breakdown, N1.8tn was budgeted for capital expenditure and President Buhari is now seeking to borrow over N9tn ($29.96bn) for ‘critical infrastructure’.
“This is absurd and way outside the government’s budgetary provisions for capital expenditure and must be rejected by all well-meaning Nigerians.
“Nigerians will recall that the Minister of Information and Culture, Alhaji Lai Mohammed, in June made public through a press statement an account of recovered looted funds between May 2015 and May 2016 amounting to N78.3bn, $185.1m, £3.5m and €11,250m in cash, while others were under interim forfeiture. What happened to the recovered funds?”
Adeyeye added that the Chairman of the Economic and Financial Crimes Commission, Mr. Ibrahim Magu, recently said that the commission had recovered more money in the last eight months than it did in 12 years.
He said that Nigerians needed to know how much revenue the government had been able to generate from crude oil, non-oil and independent revenue sources since assumption.
The PDP leader said that the clarification would boost the confidence of Nigerians on the management of their resources, especially in this period of recession, and was necessary before thinking of engaging in external borrowing.
“The APC-led Federal Government is again taking Nigeria prior to year 2005 when the external debt burden derailed the growth of Nigeria’s economy and weakened the GDP before the total cancellation of her debt,” he added.
Adeyeye also said that the proposed action of the Federal Government would be a great injustice to the citizens now and in the future if they were plunged back into debt.
He said, “Let us state unequivocally that history will not forgive this APC government and its collaborators if they allow this injustice and maladministration of our economy and citizens to stand.
“We, therefore, call on the two chambers of the National Assembly to reject this anti-people request by an anti-people government that has no genuine interest for the growth and development of the people of this country.
“We again call on all Nigerians to speak with one voice and stop President Buhari from further destroying of our great nation, Nigeria, and by extension, Africa.”
DMO sets borrowing limit
Meanwhile, the Debt Management Office has said the maximum amount that Nigeria can borrow in 2017 from both local and foreign sources without breaching the debt threshold it has set for itself is $22.08bn.
The DMO said in its debt sustainability report that Nigeria could afford to borrow $22.08bn next year, equivalent to 5.89 per cent of the projected Gross Domestic Product, if it wanted to keep the overall borrowing under the limit of 19.39 per cent of the GDP that had earlier been set.
For this year, the total public debt-to-GDP ratio is projected at 13.5 per cent, the DMO said in the report, seen by Reuters on Wednesday.
It said the total public debt stood at 28.10 per cent of revenue in 2015, slightly above the 28 per cent threshold set by the government.
As of June 2016, Nigeria’s public debt stood at N16.29tn, up from N12.60tn at the end of last year.
The DMO said, “Although the level of debt stock is still appreciably low relative to the country’s aggregate output, the debt portfolio remains mostly vulnerable to the various shocks associated with revenue, exports and substantial currency devaluation.
“This highlights a potential risk to the debt portfolio, which could be exacerbated by the developments in the international oil market, as further decline in global oil prices would exert undue pressures on the already fragile economy, including the debt position.”
It proposed that the new borrowing next year be split as $5.52bn from the domestic markets and $16.56bn from offshore, subject to local market conditions and the options available abroad, adding that foreign borrowing should have a minimum maturity of 15 years.
AfCFTA: Nigeria-South Africa Chamber Advocate Single Africa Passport, Free Visa
The Nigeria-South Africa Chamber of Commerce (NSACC) has called for a single Africa passport and a free visa to ensure the success of the Africa Continental Free Trade Area (AfCFTA) agreement.
Speaking on Thursday in Lagos during the chamber’s September Breakfast Forum, with the theme: `Perspectives on the Africa Continental Free Trade Area in Relation to Nigeria’, its President, Mr. Osayande Giwa-Osagie noted that AfCFTA would boost intra-African trade by 22 percent, adding that its implementation would impact positively on the Nigerian economy.
AfCFTA is a single continental market that adopts free flow of goods, services, and capital, supported by the free movement of persons across Africa.
Giwa-Osagie however said Nigeria must diversify its economy in order to harness the gains of the agreement.
“Current intra-African trade rated at 15 to 17 percent is low and the AfCFTA is expected to boost intra-African by 22 percent. Challenges to its implementation are lack of infrastructure, political instability and lack of economic diversification.
“This gives rise to the need for Nigeria to diversify its economy to harness the gains of the agreement. Given the importance of the free movement of people, there is a need for a free visa for Africa and a single Africa passport.
“While the implementation would help boost the Nigerian economy, the impact would be limited if there are no free movement of people,” he said.
Mr Jesuseun Fatoyinbo, Head, Trade and Transactional Services, Stanbic IBTC Bank, said the business community needed more clarification on tariff reduction or elimination under the agreement.
According to him, the little information available to corporate organisations with regards to tariffs may lead to holding back on investments.
“We have noted increased interests from global multinationals and other corporates in setting up facilities in Africa aimed at serving the continent and exporting abroad.
“So more transparency around tariff reductions both in terms of timelines and details of goods could prompt companies to act,” he said.
Fatoyinbo also called for more attention to the digitisation of trade processes across the continent. “Currently, trade in Africa is largely reliant on physical documentation and this is a major impediment. Policymakers need to prioritize regulatory amendments that allow for the digital signatures, a digital certificate of origin, digital bills of lading, and other documentation,” he added.
Nigeria Borrows $4 Billion Through Eurobonds as Order Book Peaked at $12.2 Billion
The Federal Government of Nigeria has raised a fresh $4 billion through Eurobonds, according to the latest statement from the Debt Management Office (DMO).
Nigeria had set out to raise $3 billion but investors oversubscription peaked at $12.2 billion, enabling the Federal Government to raise $1 billion more than the $3 billion it announced.
DMO said “This exceptional performance has been described as, “one of the biggest financial trades to come out of Africa in 2021” and “an excellent outcome”.
Bids were received from investors in Europe, America, Asia and several local investors. The statement noted that the quality of investors and the size of the Order Book demonstrated confidence in Nigeria.
The Eurobonds were issued in three tranches, details, namely seven years–,$1.25 billion at 6.125 per cent per annum; 12 years -$1.5 billion at 7.375 per cent per annum as well as 30 years -$1.25 billion at 8.25 per annum.
The DMO explained that the long tenors of the Eurobonds and the spread across different maturities are well aligned with Nigeria’s Debt Management Strategy, 2020 –2023.
The Eurobonds were issued as part of the New External Borrowing stipulated in the 2021 Appropriation Act. DMO noted that the $4 billion will help finance projects state in the 2021 budget.
Nigeria’s total debt stood at $87.239 billion as at March 31, 2021. However, with the $4 billion new borrowing, the nation’s debt is now $91.239 billion. A serious concern for most Nigerians given the nation’s weak foreign revenue generation and rising cost of servicing the debt.
CIBN Banking and Finance Conference 2021: Structural Transformation and Growth
Today we highlight one of the sessions, ‘Economic Recovery’, at the recently concluded CIBN Banking and Finance conference. This was a hybrid event in Abuja, Lagos and partially virtual last week. The Covid-19 disruptions have created demand and supply shocks in the global system while unlocking new opportunities for growth.
Given the pre-existing financing challenges and growing spending needs, many developing countries are in dire need of financial support. As a result of the pandemic, the financing gap for the sustainable development goals increased by 70% (over USD4.2bn). The speaker on this session, Amina J. Mohammed, Deputy SecretaryGeneral of the United Nations and Chair of the United Nations Sustainable Development Group focused on structural transformation, technology, finance and sustainability.
Recent developments such as the allocation of the USD650bn in Special Drawing Rights (SDR) were highlighted during the session. Although the SDR offers improved liquidity into the system, Africa is set to receive only USD32.2bn (or 6.4% of the total amount). Therefore, it is important that the funds are channeled towards well-targeted sectors that can contribute to sustainable development.
The banking and finance sector plays a crucial role. The Africa Continental Free Trade Area (AFCFTA) agreement offers an opportunity for the financial sector to work within a continental market of 1.2 billion people. According to Amina J. Mohammed, three main actions areas will reshape the financial sector and support stronger recovery.
The first, better customer engagement with a dynamic range of relevant products and services that go beyond bank-based financing mechanisms and offer innovative financial products tailored to specific needs of business ecosystems. Second, the adoption of new operating models to drive efficiency and inclusion. Third, a deliberate focus on enabling sustainable development investing.
Furthermore, Nigeria’s banking and finance industry is well positioned to drive specific UN sustainable development goals such as inclusive and affordable credit, especially for micro, small and medium-sized enterprises. The industry can also provide support towards climate change.
Technology also featured in the discussion points. Undoubtedly, technology is a catalyst for growth across economies and the pandemic has further exposed the deficit within the sector across developing countries. Investments in digital infrastructure need to be rapidly expanded and scaled up to boost socio-economic development.
The speaker commended the FGN’s efforts on its push towards sustainable economic recovery. Some policy and regulatory reforms highlighted include, regulation of fintechs and related services to strengthen payment systems and regulate data protection; the green bonds which Nigeria first issued in 2017 in support of green projects, including solar energy and the modernisation of the Nigerian stock exchange that has given rise to a new operational structure and leadership.
These are laudable steps. However, we note that there is still room for improvement. To achieve double-digit GDP growth and sustainable development, structural transformation should remain on the FGN’s priority list.
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