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Domestic Debt Servicing Gulped N1.23tn in 2016

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debt
  • Domestic Debt Servicing Gulped N1.23tn in 2016

The servicing of Nigeria’s domestic debt gulped N1.23tn in 2016, statistics obtained from the Debt Management Office have revealed.

The statistics showed that the highest interest payment of N839.79bn was made on funds borrowed using the instrument of FGN Bonds.

Similarly, N335.58bn interest was paid on Nigeria Treasury Bill, while debts incurred via Treasury Bonds recorded a debt service payment of N29bn last year.

A principal value of N25bn of Treasury Bonds was also repaid within the year.

The N1.23tn paid in servicing the domestic debt of the Federal Government was spread throughout the 12 months of the year.

The Federal Government had in 2015 spent N1.02tn to service its domestic debts. This comprised N25bn spent on the repayment of the principal and N993.13bn spent on interest.

This means that in one year, between 2015 and 2016, the cost of serving the Federal Government’s domestic debt rose by N208.76bn.

In a report on the cost of domestic debts, the DMO attributed the increasing cost of debt servicing to an equally increasing domestic debt profile and rising interest rate.

The report stated, “The FGN’s domestic debt service as of end of December 2015 amounted to N1.02tn compared to N865.81bn in the corresponding period of 2014, and representing an increase of N152.32bn or 17.59 per cent.

“This amount comprised principal repayment of N25bn and interest payment of N993.13bn. By instrument type, FGN bonds debt service accounted for 62.41 per cent of the total debt service payment, while payments in respect of the Nigerian Treasury Bills and Treasury Bonds were 31.83 and 5.76 per cent, respectively.

“The trend analysis shows a continued rise in FGN’s domestic debt service payments from 2011 to 2015, which was attributed to the increase in domestic debt stock, as well as the higher interest rates, which led to the rise in the cost of borrowing in the domestic debt market.”

In another document entitled: ‘Nigeria’s Debt Management Strategy, 2016-2019’, the DMO said at least 30 per cent of the nation’s domestic debt would fall due in the next one year.

It stated, “The implied interest rate was high at 10.77 per cent, due mainly to the higher interest cost on domestic debt. The portfolio is further characterised by a relatively high share of domestic debt falling due within the next one year.

It added, “Interest rate risk is high, since maturing debt will have to be refinanced at market rates, which could be higher than interest rates on existing debt. The foreign exchange risk is relatively low given the predominance of domestic debt in the portfolio.

“The main risks to the existing public debt portfolio are (i.) the high refinancing risk, given that more than 30 per cent of the domestic debt matures within one year; and, (ii.) the high interest rate risk arising from the high proportion of domestic debt due for re-fixing within the coming year, and therefore, exposed to changes in interest rates.

“The direct exposure to exchange rate risk is limited due to the low share of debt denominated in foreign currencies and low interest rate at concessional terms that apply to most of external debt. Regarding domestic debt, the large amount of short-term securities in the portfolio implies a relatively higher exposure to an interest rate increase, and additional high refinancing risk.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Nigeria’s Plan to Review Oil Companies’ Gas Flaring Strategies

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Oil

Nigeria is ramping up its efforts to address environmental concerns in the oil and gas sector with a comprehensive plan to review gas flaring strategies of international and indigenous oil companies.

The Minister of State for Environment, Dr. Iziaq Salako, announced this initiative during a national stakeholders engagement meeting on methane mitigation and reduction held in Abuja, Investors King reports.

Gas flaring, a common practice in the oil industry, releases methane—a potent greenhouse gas—into the atmosphere, contributing to climate change and posing health risks to communities near oil facilities.

Nigeria aims to end routine gas flaring by 2030, aligning with global climate goals and commitments.

Dr. Salako explained the importance of reducing methane emissions and highlighted the detrimental effects on public health, food security, and economic development.

He outlined practical steps being taken to tackle methane emissions, including the development of methane guidelines and the engagement of government institutions.

The ministry, through the National Oil Spill Detection and Response Agency, will conduct periodic reviews of oil companies’ plans to ensure compliance with the gas flaring deadline.

Deloitte management consultants will assist in conducting comprehensive forensic audits to scrutinize the legitimacy of forward-contracted transactions.

President Bola Tinubu’s commitment to environmental sustainability underscores the government’s dedication to addressing climate change and fulfilling its multilateral environmental agreements.

The engagement event served as a platform for stakeholders to discuss methane mitigation strategies, existing policies, and implementation challenges.

Collaboration and dialogue among diverse sectors are crucial in charting a unified course towards sustainable methane reduction in Nigeria’s oil and gas industry.

As the country navigates its environmental agenda, ensuring accountability and transparency in gas flaring practices remains paramount for achieving a greener and healthier future.

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Economy

Interest Rate Jumps to 24.75% as CBN Takes Aggressive Stance Against Inflation

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Dr. Olayemi Michael Cardoso

The Central Bank of Nigeria (CBN) has announced a significant increase in the monetary policy rate, known as the interest rate, to 24.75%.

This move disclosed by CBN Governor Olayemi Cardoso during the 294th Meeting of the Monetary Policy Committee press briefing in Abuja, represents a bold step by the apex bank to address the mounting inflationary pressures faced by the country.

With inflation soaring to 31.70% in February, the CBN aims to moderate this upward trend by tightening its monetary policy stance.

This decision follows the previous hike in the interest rate to 22.75% in February, showcasing the CBN’s commitment to combatting inflationary forces.

While the bank opted to maintain the Cash Reserve Ratio at 45%, the significant increase in the interest rate underscores the urgency of the situation and the need for decisive action.

Governor Cardoso emphasized that these measures are essential to stabilize the economy and safeguard the purchasing power of the Nigerian currency.

The 294th MPC marks the second meeting under Governor Cardoso’s leadership, indicating a proactive approach to addressing economic challenges.

The next MPC meeting is scheduled for May 20th and 21st, 2024, highlighting the ongoing commitment of the CBN to navigate Nigeria’s economic landscape amidst inflationary pressures.

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Economy

Nigeria Braces for 10th Consecutive Interest Rate Hike by Central Bank

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Central Bank of Nigeria (CBN)

As Nigeria grapples with persistently high inflation, the Central Bank of Nigeria (CBN) is gearing up to implement its tenth consecutive interest rate hike in a bid to curb the soaring prices and attract investment.

Analysts surveyed by Bloomberg are anticipating a substantial 125 basis-point increase in the key rate to 24%, marking one of the most significant adjustments in the current tightening cycle.

The decision, expected to be announced by Governor Olayemi Cardoso on Tuesday at 2 p.m. in Abuja, comes on the heels of inflation accelerating to 31.7% in February, far surpassing the central bank’s target range of 9%.

This surge has been primarily attributed to the sharp depreciation of the naira, prompting authorities to devalue the currency twice since June to narrow the gap with the unofficial market rate and encourage investor confidence.

While these measures have seen the naira strengthen in recent days and bolstered investment inflows, including a fourfold increase in overseas remittances and significant foreign investor portfolio asset purchases, there remains a palpable need for more decisive action.

Giulia Pellegrini, a senior portfolio manager at Allianz Global Investors, emphasized the necessity for the CBN to intensify its tightening efforts to regain foreign investors’ confidence in the local bond market.

While acknowledging the positive strides made by the central bank, Pellegrini stressed the importance of a more assertive approach to prevent the diversion of investor attention to other frontier markets.

As the Nigerian economy navigates through these challenging times, the impending interest rate hike signals the CBN’s determination to address inflation head-on and foster a more stable economic environment.

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