Economy

Legacy Debts Account for $3bn of $5.5bn Foreign Loans –Adeosun

Published

7 years ago

October 26, 2017

Legacy Debts Account for $3bn of $5.5bn Foreign Loans –Adeosun

The Minister of Finance, Mrs. Kemi Adeosun, on Wednesday, stated that the Federal Government would apply the sum of $3bn in refinancing the legacy debts of the immediate past administration.

The outlay is part of the $5.5bn foreign loan being sourced from the international financial markets, according to the minister.

Adeosun, who appeared on a television programme in Abuja, according to a statement made available by her Special Adviser on Media, Mr. Oluyinka Akintunde, said the proposed $5.5bn loan was made up of refinancing of heritage debts to the tune of $3bn and new borrowing of $2.5bn for the 2017 budget.

The minister said the 2017 budget was facing liquidity problem, which explained in part the reasons that the Federal Government was seeking to borrow $5.5bn from the international financial market.

She said that the other reason was to get $3bn to refinance part of the domestic debt incurred by the government of President Goodluck Jonathan.

The minister stated that under Jonathan, the country’s debt rose from N7.9tn in June 2013 to N12.1tn in June 2015 despite the fact that “only 10 per cent of the budget was allocated to capital expenditure when oil price exceeded $120 per barrel.”

This means that the country’s debt rose by N4.2tn within the last two years that preceded the ascendance of President Muhammadu Buhari to the Presidency on May 29, 2015.

Adeosun stated, “Let me explain the $5.5bn borrowing because there have been some misrepresentations in the media in the last few weeks. The first component of $2.5bn 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 $3bn external borrowing. This is purely a portfolio restructuring activity that will not result in any increase in the public debt.”

She added, “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 the light of this, the government adopted an expansionary fiscal policy with an enlarged budget that will be funded in the short term by borrowing.

“Nigeria’s debt to Gross Domestic Product currently stands at 17.76 per cent and compares favourably to all its peers. The debt to GDP ratio for Ghana is 67.5 per cent; Egypt is 92.3 per cent; South Africa, 52 per cent; Germany, 68.3 per cent; and the United Kingdom, 89.3 per cent.

“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.”

The minister emphasised that the Muhammadu Buhari-led administration was investing in critical infrastructural projects such as roads, railway and power in order to deliver a fundamental structural change to the economy that would reduce the nation’s exposure to crude oil.

She gave an assurance that the $5.5bn foreign loan was consistent with Nigeria’s Debt Management Strategy, whose main objective was to increase external financing with a view to rebalancing the public debt portfolio in favour of long-term external financing.

Some experts, however, opined that the debt to GDP ratio was not the best in measuring a country’s debt burden, saying that the use of debt to revenue ratio provided a better ratio for measuring a country’s debt burden as it showed the capacity to meet debt obligations.

In a telephone interview with our correspondent, a financial expert and Head of the Department of Banking and Finance, Nasarawa State University, Dr. Uche Uwaleke, stated that the debt to revenue ratio was a better measure.

According to the associate professor, the use of the index is a better way to measure a country’s capacity to pay debt and interest. He, however, said that the country hardly had any better option than to borrow, but insisted that debts should be tied to projects that were self-liquidating.

Uwaleke said, “There is no doubt that the country’s debt burden is high going by the debt to revenue ratio. There are other measures of the debt burden such as the debt to GDP ratio, which is currently around 18 to 19 per cent.

“The debt to revenue ratio is a better measure, because it measures the country’s ability to pay back. This challenge has been recognised by the government. The major risk we have in our debt burden is that we are carrying expensive local debts that are even of short-term nature.”

The country’s debt to revenue ratio rose from 35 per cent in 2015 to 60 per cent in 2016, according to the World Bank.

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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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Economy

Ubeta Project to Produce 350 Million Standard Cubic Feet of Gas Per Day Once Operational – FG

Published

2 hours ago

September 18, 2024

Ugwoke Ogbodo

The Federal Government of Nigeria has said that once the Ubeta gas field is fully operational, it will produce 350 million standard cubic feet of gas per day.

With this dream realised, the Federal Government said the anticipated achievement would enhance energy security, attract investments, and strengthen collaboration with key partners.

This was made known by the Special Adviser to President Bola Tinubu on Energy, Olu Verheijen, at the inaugural US-Nigeria Strategic Energy Dialogue, hosted by the US State Department in Washington, DC.

Recall that the Nigerian National Petroleum Corporation (NNPC) Limited, in partnership with French energy giant TotalEnergies, had in July planned to invest a significant $550 million to develop gas facilities in oil-rich Rivers State.

Verheijen had announced the kickoff of a $550 million upstream gas project between Nigerian National Petroleum Corporation Ltd. (NNPCL) and TotalEnergies for the development of the Ubeta field.

At a luncheon during the dialogue, Verheijen mentioned that the upstream gas project would produce 350 million standard cubic feet of gas per day once operational.

A statement from Morenike Adewunmi, Stakeholder Manager, Office of the Special Adviser to the President on Energy, quoted Ms. Verheijen as informing the gathering that President Bola Tinubu’s major energy reforms since June 2023 have been aimed at enhancing energy security, attracting investments, and strengthening collaboration with key partners, including the US government.

According to her, the reforms have significantly improved the viability of Nigeria’s gas-to-power value chain.

She explained that in support of the reform efforts, the President issued five new executive orders designed to offer fiscal incentives for investment and reduce the cost and time required to finalize and implement contracts for developing and expanding gas infrastructure.

Verheijen said that the directives aim to immediately unlock up to $2.5 billion in new oil and gas investments in the country.

She acknowledged the valuable support of financing and technical partners, including the US government, the World Bank, and the African Development Bank, in efforts to expand electricity access and reliability through both grid and off-grid solutions.

Economy

Nigeria’s Trade Surplus Hits N6.95 Trillion in Q2 2024, Marking a 33.63% Increase

Published

5 days ago

September 13, 2024

Investors King

Nigeria’s trade surplus, the difference between exports and imports, rose to N6.95 trillion in the second quarter of 2024, according to the latest foreign trade statistics report released by the National Bureau of Statistics (NBS) on Wednesday.

This marks a 33.63 percent increase from the N5.19 trillion recorded between January to March 2024, bringing the total value at N12.14 trillion in the first half of 2024.

This is however higher than N154.12 billion recorded in the first six months of 2023, the NBS data revealed.

The report showed that the country recorded a positive trade balance for the sixth straight quarter in Q2, signifying key economic development.

A trade surplus occurs when a country’s exports exceed its imports.

Total merchandise trade in Africa’s most populous nation stood at N31.8 trillion in Q2, a decline of 3.76 percent compared to the preceding quarter and a 150.39 percent jump compared to a year ago.

“Exports accounted for 60.89% of total trade with a value of N19,418.93 trillion, showing a marginal increase of 1.31% compared to the value recorded in Q1 2024 (N19,167.36) and a 201.76% rise over the value recorded in the second quarter of 2023 (N6,435.13),” NBS said.

Analysts attributed the surge in exports to the exchange rate depreciation caused by the foreign exchange reform implemented last June.

Tobi Ehinmosan, a fixed income and macroeconomic analyst at Lagos-based FBNQuest Capital, said the major factor for this significant trade surplus numbers is the decline in import trade.

“No doubt, our export performance has been on the rise but then the main driver is the drop in import trade, especially from June 2023 when the exchange rate was floated,” he said.

“A reasonable explanation for the lower import figure is the challenges traders face in sourcing for FX,” Ehinmosan noted, adding that the scarcity of FX has led to lower import of commodities into the country.

Echoing the same sentiment, Michael Adeyemi, an economics lecturer said the surplus suggests a reduction in imports, caused by such factors like currency devaluation or high import costs.

“A trade surplus strengthens the balance of payments, which can help stabilize Nigeria’s currency, the naira,” Adeyemi said.

“It also allows the country to build foreign reserves and pay off international debt obligations more comfortably,” the university lecturer explained.

The naira has tumbled by over 70 percent this year following a two-time devaluation last year. The official exchange rate increased from N463.38/$ on June 9, 2023, to N1.558.7/$ as of September 12, 2024.

At the parallel market, the naira depreciated to over N1,600/$ from 762/$.

Recent data from the International Monetary Fund highlighted that Nigeria’s current account balance, a measure of its net trade in goods, services, and transfers with the rest of the world, rose to $1.43 billion this year from $1.21 billion surplus in 2023.

“A growing current account surplus can be a sign of economic strength, indicating that the country’s industries are competitive internationally and that its exports are in demand,” Ibrahim Bakare, a professor of Economics said.

“It may also lead to an appreciation of the country’s currency, as increased demand for its goods and services boosts the value of its currency relative to others,” he added.

Economy

FIRS VAT Revenue Surges to N1.56 Trillion in Q2 2024 Amid Economic Struggles

Published

1 week ago

September 10, 2024

Samed Olukoya

The Federal Inland Revenue Service (FIRS) generated N1.56 trillion in Value Added Tax (VAT) in the second quarter (Q2) of 2024, according to the latest report from the National Bureau of Statistics (NBS).

This represents an increase of 9.11% compared to the N1.43 trillion reported in the first quarter of 2024.

A breakdown of the report showed that local VAT payments accounted for N792.58 billion of the total amount generated, while foreign VAT payments stood at N395.74 billion, and import VAT contributed N372.95 billion.

A quarterly analysis of the report revealed that human health and social work activities recorded the highest growth rate with 98.44%. This was followed by agriculture, forestry, and fishing with 70.26%, and water supply, sewerage, waste management, and remediation activities with 59.75%.

On the other hand, activities of households as employers and undifferentiated goods- and services-producing activities of households for own use had the lowest growth rate with –46.84%, followed by real estate activities with –42.59%.

Sectoral analysis showed that the manufacturing sector contributed the most at 11.78%. Information and communication and mining and quarrying contributed 9.02% and 8.79%, respectively.

Nevertheless, activities of households as employers and undifferentiated goods- and services-producing activities of households for own use recorded the least share with 0.00%, followed by activities of extraterritorial organizations and bodies with 0.01%, and water supply, sewerage, waste management, and remediation activities and real estate services with 0.04% each.

On a year-on-year basis, VAT collections grew by 99.82% from Q2 2023 despite ongoing economic challenges.

Nigeria’s inflation rate remains well above 30 percent, while new job creation is almost nonexistent.

Other key economic factors, such as investor sentiment, the purchasing managers’ index, and consumer spending, remain weak amid intermittent protests by citizens demanding improvements in quality of life.