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DMO and Strategy for Economic Recovery

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  • DMO and Strategy for Economic Recovery

Perhaps at no time in the history of Nigeria has the federal government come under such intense pressure to deliver on the economy as now, and this is understandable. 2016 closed with Nigeria recording its worst GDP figure in 25 years as low oil prices, tight monetary liquidity and militant attacks on oil infrastructure rocked the economy.

The Consumer Price Index, which measures inflation also increased by 18.72 January this year. National budgets have continued to run into deficits as oil revenue dwindles. The federal government and many state governments find it increasingly tough paying salaries of their workers.

The private sector has not fared better. Since the government is the biggest spender in the economy, a drastic cut in revenue means less money in the system. Many companies that depend hugely on government patronage are bearing the brunt of the recession and laying off staff to reduce overhead. The result is that more Nigerians are finding themselves in the unemployment market with no hope of immediate engagement.

President Buhari came to power on the promise of change, and he is under an unprecedented pressure to deliver economic change at a time the country faces its worse economic challenges. In economic matters, there are no miracles, but conscious, calculated and strategic intervention through policies and measures that can bring the economy out of recession.

All eyes are on the government to stimulate the economy by doing whatever is needed to bring it quickly out of a debilitating recession. That is why institutions such as the Debt Management Office, DMO, the Security and Exchange Commission, SEC, and the Nigerian Economic Summit Group, NESG, among others, are increasingly in the headline news.

The DMO is a government agency established to coordinate the management of Nigeria’s debts in such that is healthy for the economy. Anyone who has followed developments in that office will readily admit the DMO has been a work horse for this admiration. Watching Dr. Abraham Nwankwo, Director General of the DMO talk on Nigeria’s debt management is like listening to a lecture in an ivory tower.

The man seems to be at his best when defending some of the interventions of this administration, especially when talking about the government’s borrowing plan to finance the growing budget deficit. But this is to be expected from the head of the debt management office since he is also an important part of the equation. It is like a man defending his own actions before a sceptic audience.

What has fascinated me about this man is how he breaks complex economic issues down into bits and pieces that can be easily digested by the lay man. For instance, the Buhari administration’s plan to seek loan to finance development projects in the country as a result of shortfall in government revenue. Nwankwo has tried to convince Nigerians on why borrowing is good for the economy; why loan properly utilised is a sort of investment that is capable of reflating the economy of any country.

A three year Debt Management Strategy (2016-2019) initiated by the DMO better illustrates how debt management has become a key component of Nigeria’s economic recovery effort. It is a broad-based strategy that inspires confidence in the economy and in the managers of the economy. One major aspect of the strategy is that over the medium term, Nigeria will strive to remix the public debt portfolio from 84% domestic and 16% external to 60% domestic and 40% external. And the reason, which may not be obvious to many, is that external loans seem to come cheaper than domestic borrowing.

The DMO DG said during one of his interviews that for Nigeria to pull the economy out of recession, government must embrace what he called a “conventional public borrowing” to fund critical infrastructures. This is not a loan to be disbursed at the whims and caprices of the presidency; it is loan tied to specific and strategic projects to give the economy a rebound. This he said could easily be tracked by the public and the legislature.

This thinking informed the decision by the Buhari administration to decide on a three-year borrowing plan to fund deficits in the budget from 2016-2019. In the words of President Buhari, it is a “prudent” borrowing plan to bridge the financial gap created in the budgets, stressing that the funds would largely be applied to key infrastructure projects namely power, railway and road project amongst others.

The DMO recently facilitated the approval of the issuance of $1 billion Eurobond and appointment of six transaction parties for the bond by the Federal Government. The bond is part of the country’s plans to borrow a total of N1.8 trillion ($5.8 billion) from abroad and locally to fund an estimated 2016 budget deficit of N2.2 trillion. Apart from the fact that it is a good deal for the country, it will also prevent the emasculation of local investors.

Now, the DMO is in the news again. This time it is promoting a novel product and one that benefits majority of Nigerians. This is the newly floated Federal Government Savings Bond, (FGSB). This is the first time one has heard about this type of bond. Of course bonds are debt instruments in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate. The owners of such a bond are creditors or debt- holders.

Although the federal government regularly churns out bonds to raise fund from the capital market, this one is different. The FGSB is a retail savings product accessible to all income groups, and it will enable all citizens participate in and benefit from the favourable returns available in the capital market which had hitherto been an exclusive preserve of big players. Every Nigerian who has N5,000 can subscribe to this bond that will be issued monthly for a tenure of two to three years.

The minimum subscription amount is N5,000.00 with additions in multiples of N1,000.00, subject to a maximum ofN50,000,000.00. And there is no fee or charges for subscription. No matter the tenure of the bond, interest will be paid quarterly to holders. The payment will go to the Central Securities Clearing System (CSCS) Accounts of investors and text alerts will be sent to investors on Settlement Day.

The purpose of this bond, aside being a source of diversified funding for government, is to also help deepen the national savings culture. Anyone who earns income is able to participate in this unique investment opportunity.

This is an alternative for many Nigerians who have taken to the Ponzi schemes as investment option. The FGSB, like all government bonds, is backed by the full faith and credit of the Federal Government of Nigeria. It is a scheme Nigerians must take advantage of to help themselves and their country. It is another innovation from the rich bag of the country’s economic managers.

Isaac wrote in from Ilorin

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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Crude Oil

Oil Prices Decline for Third Consecutive Day on Weaker Economic Data and Inventory Concerns

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Crude Oil

Oil prices extended their decline for the third consecutive day on Wednesday as concerns over weaker economic data and increasing commercial inventories in the United States weighed on oil outlook.

Brent oil, against which Nigerian oil is priced, dropped by 51 cents to $89.51 per barrel, while U.S. West Texas Intermediate crude oil fell by 41 cents to $84.95 a barrel.

The softening of oil prices this week reflects the impact of economic headwinds on global demand, dampening the gains typically seen from geopolitical tensions.

Market observers are closely monitoring how Israel might respond to Iran’s recent attack, though analysts suggest that this event may not significantly affect Iran’s oil exports.

John Evans, an oil broker at PVM, remarked on the situation, noting that oil prices are readjusting after factoring in a “war premium” and facing setbacks in hopes for interest rate cuts.

The anticipation for interest rate cuts received a blow as top U.S. Federal Reserve officials, including Chair Jerome Powell, refrained from providing guidance on the timing of such cuts. This dashed investors’ expectations for significant reductions in borrowing costs this year.

Similarly, Britain’s slower-than-expected inflation rate in March hinted at a delay in the Bank of England’s rate cut, while inflation across the euro zone suggested a potential rate cut by the European Central Bank in June.

Meanwhile, concerns about U.S. crude inventories persist, with a Reuters poll indicating a rise of about 1.4 million barrels last week. Official data from the Energy Information Administration is awaited, scheduled for release on Wednesday.

Adding to the mix, Tengizchevroil announced plans for maintenance at one of six production trains at the Tengiz oilfield in Kazakhstan in May, further influencing market sentiment.

As the oil market navigates through a landscape of economic indicators and geopolitical events, investors remain vigilant for cues that could dictate future price movements.

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Commodities

Dangote Refinery Cuts Diesel Price to ₦1,000 Amid Economic Boost

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Aliko Dangote - Investors King

Dangote Petroleum Refinery has reduced the price of diesel from ₦1200 to ₦1,000 per litre.

This price adjustment is in response to the demand of oil marketers, who last week clamoured for a lower price.

Just three weeks ago, the refinery had already made waves by lowering the price of diesel to ₦1,200 per litre, a 30% reduction from the previous market price of around ₦1,600 per litre.

Now, with the latest reduction to ₦1,000 per litre, Dangote Refinery is demonstrating its commitment to providing accessible and affordable fuel to consumers across the country.

This move is expected to have far-reaching implications for Nigeria’s economy, particularly in tackling high inflation rates and promoting economic stability.

Aliko Dangote, Africa’s richest man and the owner of the refinery, expressed confidence that the reduction in diesel prices would contribute to a drop in inflation, offering hope for improved economic conditions.

Dangote stated that the Nigerian people have demonstrated patience amidst economic challenges, and he believes that this reduction in diesel prices is a step in the right direction.

He pointed out the aggressive devaluation of the naira, which has significantly impacted the country’s economy, and sees the price reduction as a positive development that will benefit Nigerians.

With this latest move, Dangote Refinery is not only reshaping the fuel market but also reaffirming its commitment to driving positive change and progress in Nigeria.

The reduction in diesel prices is expected to provide relief to consumers, businesses, and various sectors of the economy, paving the way for a brighter and more prosperous future.

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Crude Oil

IEA Cuts 2024 Oil Demand Growth Forecast by 100,000 Barrels per Day

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Crude Oil

The International Energy Agency (IEA) has reduced its forecast for global oil demand growth in 2024 by 100,000 barrels per day (bpd).

The agency cited a sluggish start to the year in developed economies as a key factor contributing to the downward revision.

According to the latest Oil Market Report released by the IEA, global oil consumption has continued to experience a slowdown in growth momentum with first-quarter growth estimated at 1.6 million bpd.

This figure falls short of the IEA’s previous forecast by 120,000 bpd, indicating a more sluggish demand recovery than anticipated.

With much of the post-Covid rebound already realized, the IEA now projects global oil demand to grow by 1.2 million bpd in 2024.

Furthermore, growth is expected to decelerate further to 1.1 million bpd in the following year, reflecting ongoing challenges in the market.

This revision comes just a month after the IEA had raised its outlook for 2024 oil demand growth by 110,000 bpd from its February report.

At that time, the agency had expected demand growth to reach 1.3 million bpd for 2024, indicating a more optimistic outlook compared to the current revision.

The IEA’s latest demand growth estimates diverge significantly from those of the Organization of the Petroleum Exporting Countries (OPEC). While the IEA projects modest growth, OPEC maintains its forecast of robust global oil demand growth of 2.2 million bpd for 2024, consistent with its previous assessment.

However, uncertainties loom over the global oil market, particularly due to geopolitical tensions and supply disruptions.

The IEA has highlighted the impact of drone attacks from Ukraine on Russian refineries, which could potentially disrupt fuel markets globally.

Up to 600,000 bpd of Russia’s refinery capacity could be offline in the second quarter due to these attacks, according to the IEA’s assessment.

Furthermore, unplanned outages in Europe and tepid Chinese activity have contributed to a lowered forecast of global refinery throughputs for 2024.

The IEA now anticipates refinery throughputs to rise by 1 million bpd to 83.3 million bpd, reflecting the challenges facing the refining sector.

The situation has raised concerns among policymakers, with the United States expressing worries over the impact of Ukrainian drone strikes on Russian oil refineries.

There are fears that these attacks could lead to retaliatory measures from Russia and result in higher international oil prices.

As the global oil market navigates through these challenges, stakeholders will closely monitor developments and adjust their strategies accordingly to adapt to the evolving landscape.

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