Markets

RenCap Questions FG’s Increased borrowing From CBN

Published

8 years ago

December 9, 2016

RenCap Questions FG’s Increased borrowing From CBN

The increase in the Federal Government’s borrowing from the Central Bank of Nigeria has been described as strikingly higher than the cap stipulated in the CBN Act of 2007.

The Sub-Saharan Africa Economist, Renaissance Capital, a Russian investment bank, Yvonne Mhango, noted that the Emir of Kano and former CBN governor, Muhammadu Sanusi II, recently drew attention to the violation of the rule stipulated in the CBN Act of 2007, which caps central bank financing of the FG’s budget deficit at five per cent of the last fiscal year’s revenue.

“We ran the numbers and our estimates show the CBN financing of the FGN surged to 48 per cent and 54 per cent of the previous year’s revenue, in 2015 and in October 2016, respectively,” she said in an emailed note on Thursday.

According to Mhango, in the fiscal year 2016, the central bank lending to the Federal Government will exceed 50 per cent of the previous fiscal year’s revenue, by RenCap’s estimate.

She said, “This is strikingly higher than the cap of five per cent stipulated in the Central Bank of Nigeria Act of 2007 (Section 38.2).

“At the same time, the FG’s deposits have been building up, which mitigates the contention of the central bank funding. However, to us, this raises the question of why the FG is borrowing from the CBN when it has funds in its accounts.”

Mhango said the first sharp increase in CBN financing under the current administration was in November 2015, when the cabinet was first announced, adding that the FG increased its overdraft on its account at the CBN by N785bn (or about $4bn).

She said, “In March 2016, the FG issued a ‘converted bond’ of N974bn (or $4.9bn) that the CBN invested in. In the year to October, the CBN lending to the government increased by N2.7tn to N4.2trn. Over the same period, the FG’s deposits rose by N1.9tn to N5.2tn.

“This affirms the Presidency’s argument that the FG holds substantial deposits to cover its loans from the CBN. But for us, this raises the question of why the deficit is being monetised when the FG has funds, particularly when there are macro implications.”

The RenCap economist noted that a sharp fall in revenues compelled the government to increase its borrowing requirement.

According to her, governments have four sources to borrow from to finance their budget deficits: abroad, the central bank, domestic commercial banks, and the domestic non-bank sector (i.e., pension funds).

“The Central bank financing tends to be frowned upon because it expands money supply and adds to inflation. Nigeria’s narrow money year-on-year growth has gone from a negative one per cent in October 2015 to 50 per cent a year later. And in that period, year-on-year inflation accelerated to 18.3 per cent in October versus 9.3 per cent, and the naira weakened against the dollar in the parallel forex market, from N227/$1 to N450/$1,” Mhango said.

She said revenue constraints implied that the CBN funding may not be temporary.

“We have established that Nigeria has the funds to settle the borrowed funds in the short term, unlike Ghana, where it took an International Monetary Fund programme to reduce the central bank funding.

“That said, the FG’s proposed 20 per cent increase in spending to N7.3tn in 2017, when we see resources still being constrained, raises the risk of the central bank funding continuing, implying inflation may remain elevated and naira depreciation pressures persist.”

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Samed Olukoya

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

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Crude Oil

Oil Prices Surge as Hurricane Threat Looms Over U.S. Gulf Coast

Published

3 days ago

September 9, 2024

Investors King

Oil jumped in Asian trading on Monday as a potential hurricane system approached the U.S. Gulf Coast, and as markets recovered from a selloff following weaker-than-expected U.S. jobs data on Friday.

West Texas Intermediate crude oil rose 72 cents, or 1.06%, to $68.39 a barrel while Brent crude oil was up 71 cents, or 1%, at $71.77 a barrel.

Prices had gained as much as $1 during early Asian trading before pulling back.

Analysts said the bounce was in part a reaction to a potential hurricane in the U.S. Gulf Coast.

A weather system in the southwestern Gulf of Mexico is forecast to become a hurricane before it reaches the northwestern U.S. Gulf Coast, the U.S. National Hurricane Center said on Sunday.

The U.S. Gulf Coast accounts for some 60% of U.S. refining capacity.

“Sentiment recovered somewhat from last week’s selloff,” said independent market analyst Tina Teng.

At the Friday close, Brent had dropped 10% on the week to the lowest level since December 2021, while WTI fell 8% to its lowest close since June 2023 on weak jobs data in the U.S.

A highly anticipated U.S. government jobs report showed nonfarm payrolls increased less than market watchers had expected in August, rising by 142,000, and the July figure was downwardly revised to an increase of 89,000, which was the smallest gain since an outright decline in December 2020.

A decline in the jobless rate points to the Federal Reserve cutting interest rates by just 25 basis points this month rather than a half-point rate cut, analysts said.

Lower interest rates typically increase oil demand by spurring economic growth and making oil cheaper for holders of non-dollar currencies.

But weak demand continued to cap price gains.

The weakness in China is driven by economic slowdown and inventory destocking, Jeff Currie, chief strategy officer of energy pathways at U.S. investment giant Carlyle Group, told the APPEC energy conference in Singapore on Monday.

Refining margins in Asia have slipped to their lowest seasonal levels since 2020 on weak demand from the two largest economies.

Fuel oil exports to the U.S. Gulf Coast fell to the lowest level since January 2019 last month on weaker refining margins.

Crude Oil

Oil Prices Rebound on OPEC+ Output Delay Talks and U.S. Inventory Drop

Published

6 days ago

September 5, 2024

Samed Olukoya

Oil prices made a modest recovery on Thursday on the expectations that OPEC+ may delay planned production increases and the drop in U.S. crude inventories.

Brent crude oil, against which Nigerian oil is priced, rose by 66 cents, or 0.9% to $73.36 per barrel while U.S. West Texas Intermediate (WTI) crude appreciated by 64 cents or 0.9% to $69.84 per barrel.

The rebound in oil prices was a result of the American Petroleum Institute (API) report that revealed that the U.S. crude oil inventories had fallen by a surprising 7.431 million barrels last week, against analysts 1 million barrel decline projection.

The decline signals better than projected demand for the commodity in the United States of America and offers some relief for traders on global demand.

John Evans, an analyst at PVM Oil Associates, attributed the rebound in crude oil prices to the API report.

He said, “There is a pause of breath and light reprieve for oil prices.”

Also, discussions within the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, are fueling speculation about a potential delay in planned output increases.

The group was initially expected to increase production by 180,000 a day in October 2024.

However, concerns over softening demand in China and potential developments in Libya’s oil production have prompted the group to reconsider its strategy.

Despite the recent rebound, analysts caution that lingering uncertainties around global oil demand may continue to weigh on prices in the near term.

Energy

Power Generation Surges to 5,313 MW, But Distribution Issues Persist

Published

1 week ago

September 4, 2024

Samed Olukoya

Nigeria’s power generation continues to get better under the leadership of President Bola Ahmed Tinubu.

According to the latest statement released by Bolaji Tunji, the media aide to the Minister of Power, Adebayo Adelabu, power generation surged to a three-year high of 5,313 megawatts (MW).

“The national grid on Monday hit a record high of 5,313MW, a record high in the last three years,” the statement disclosed.

Reacting to this, the Minister of Power, Adebayo Adelabu, called on power distribution companies to take more energy to prevent grid collapse as the grid’s frequency drops when power is produced and not picked by the Discos.

He added that efforts would be made to encourage industries to purchase bulk energy.

However, a top official of one of the Discos was quoted as saying that the power companies were finding it difficult to pick the extra energy produced by generation companies because they were not happy with the tariff on other bands apart from Band A.

“As it is now, we are operating at a loss. Yes, they supply more power but this problem could be solved with improved tariff for the other bands and more meter penetration to recover the cost,” the Disco official, who pleaded not to be named due to lack of authorisation to speak on the matter, said.

On Saturday, the ministry said power generation that peaked at 5,170MW was ramped down by 1,400MW due to Discos’ energy rejection.