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FG Protests Moody’s Downgrade, Reveals Plan to Sell JV Oil Assets

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  • FG Protests Moody’s Downgrade, Reveals Plan to Sell JV Oil Assets

The Nigerian government Wednesday “strongly” rejected the reasons one of the global rating agencies, Moody’s Investors Service, gave for its decision to downgrade the country’s long-term issuer and senior unsecured debt rating to ‘B2’ from ‘B1’.

Moody’s in a statement Wednesday also downgraded the country’s senior unsecured MTN programme rating and the provisional senior unsecured debt rating to ‘(P)B2’ from ‘(P)B1,’ while retaining a stable outlook on Nigeria.

In its reaction to the downgrade, the federal government reeled out the reform initiatives it has undertaken in the last two years to turn around the economy, including its intention to raise N710 billion ($2 billion) this year from the restructuring of the government’s equity in the joint venture oil assets, as highlighted in the 2018 budget.

“The reform is aimed at increasing private sector equity participation to improve efficiencies in the sector and also provides revenue to the government which will be deployed solely and exclusively for creating new assets in Nigeria,” the federal government said in a detailed statement protesting the sovereign downgrade.

The federal government also pointed out that while the Federal Ministry of Finance, Central Bank of Nigeria (CBN) and the Debt Management Office (DMO) respect the right of Moody’s to make this decision, “we strongly disagree with the premise and must address some of the conclusions upon which the decision rests”.

“This is equivalent to Nigeria’s existing B/Stable Outlook rating from S&P and slightly lower than Nigeria’s B+/Negative Outlook rating from Fitch,” said the federal government.

According to the federal government, since Nigeria was last rated by Moody’s as B1 stable in December 2016, the country has successfully emerged from a protracted recession and recorded important improvements across a broad range of indices.

It listed these indices to include a return to economic growth of 0.55 per cent in the second quarter of 2017, and returning business confidence as evidenced by a PMI index of 55.0.

Furthermore, the Nigerian government pointed out that the country has continued to witness a stable foreign exchange window for importers and exporters, with improving liquidity and convergence of the parallel and official rates.

This, it stated, has led to significant improvement in the country’s foreign exchange reserves, now totalling $34 billion.

Other positive indices which the government listed included: “Increased oil production, combined with stable and now improving oil prices. Slowly improving revenue profile, with non-oil revenue (principally taxes) up by 10 per cent.

“Month-on-month improvements in inflation levels since January 2017, with inflation continuing to trend downwards. Strong year-on-year improvement on the World Bank Ease of Doing Business Rankings from 169th to 145th place, a 24 place move in one year.”

According to the Nigerian government, in 2016 the country recorded the highest capital expenditure deployment since 2013, making investments in critical infrastructure to support further growth.

“At the heart of Moody’s rationale is the need for Nigeria to improve non-oil revenue aggressively. This is absolutely and directly aligned to the government’s priorities.

“This is critical to our economic development and is the basis for the establishment of a stable and inclusive economy, which can withstand global shocks and has the resources to increase investments in our infrastructure,” it added.

In addition, the federal government stated that it had put in place a number of measures to improve its revenue collection, stating that the Federal Inland Revenue Service (FIRS) has made good progress in increasing revenues.
It listed the efforts by the FIRS to include the introduction of a tax amnesty (the on-going Voluntary Assets and Income Declaration Scheme – VAIDS), which is showing positive results, and plugging leakages and deployment of technology-driven revenue management strategies.

“An example is Health Pay, a pilot cashless revenue project in the health sector, which has recorded material increases in revenue.

“We have seen improvements in revenue in 2017. Fiscal revenues are linked directly to both the performance of the economy and the number of taxpayers contributing. As a result of the foundation that has been established in 2017, we expect similar positive trends in 2018.

“Our revenue initiatives are changing the mix of revenue sources available to government from the traditional oil or debt to a combination of oil, debt and domestic revenue.

“For example, the 2018 budget includes N710 billion proceeds from the restructuring of the government’s equity in the JV oil assets.

“The reform is aimed at increasing private sector equity participation to improve efficiencies in the sector and also provides revenue to the government which will be deployed solely and exclusively for creating new assets in Nigeria,” it said.

Continuing, the federal government also addressed Moody’s concern that while Nigeria’s debt levels remained low, interest was consuming a larger portion of revenue.

“It should be noted that we are implementing a very prudent fiscal and debt management strategy to reduce the cost of our debt. Given the relatively higher domestic interest rates, we are focusing on longer term external borrowing with an aim of rebalancing our domestic and international debt portfolio to a 60:40 split over the coming years.

“Our existing proposal to refinance $3 billion of treasury bills through external borrowing is expected to reduce Nigeria’s debt servicing costs, further improving our fiscal position.

“We also expect this strategy to help to reduce the ‘crowding out’ effect of government borrowing in the domestic market.

“The challenges that are highlighted in the Moody’s rating are clear, and are being addressed by the government, with the environment having improved significantly since the last period of assessment.”

However, Moody’s explained that it took the decision to downgrade Nigeria because the authorities’ efforts to address the key structural weakness exposed by the oil price shock by broadening the non-oil revenue base had “so far proven largely unsuccessful”.

As a consequence, the agency stated that while debt levels in the country had remained “contained and notwithstanding recent cyclical improvements, the government’s balance sheet remains structurally exposed to further economic or financial shocks, with interest payments very high relative to revenues and deficits elevated despite cuts in capital spending”.

It added: “The stable outlook reflects the fact that the likelihood of a shock occurring that would further impair Nigeria’s economic and fiscal strength remains low, with external vulnerabilities having receded supported by the rebound in oil production, the current account projected to remain in surplus, and reserves boosted through external borrowings and increased foreign capital inflows. Medium-term growth prospects are also credit supportive.

“Concurrently, Moody’s has lowered the long-term foreign-currency bond ceiling to B1 from Ba3 and the long-term foreign currency deposit ceiling to B3 from B2. The long-term local-currency bond and deposit ceilings remain unchanged at Ba1.”

According to Moody’s, the oil shock severely weakened Nigeria’s public finances, with general government revenues suffering a 50 per cent decline between 2014 and 2016 (from 10.5% of GDP to 5.3% respectively).

It noted that the damage wrought by the oil price shock was yet to be undone by government, adding that the downgrade reflected Moody’s view that the weakness in Nigeria’s public finances would remain for some years to come.

“Moody’s forecasts general government revenue to average only 6.4 per cent of GDP over 2017-2019, the lowest level of any sovereign rated by Moody’s.

“The results of the authorities’ efforts to increase non-oil revenue since late 2015, which have focused on improving compliance and broadening the tax base, have been limited and negatively impacted by a contractionary environment in 2016.

“The Federal Revenue Inland Service (FRIS) has been able to increase non-oil revenue by 15 per cent in nominal terms as of September 2017 compared to 2016, but this is at a pace that is below nominal GDP growth.

“Meanwhile, the independent re-appropriation of revenues from the ministries, departments and agencies (MDAs) has yielded less than projected results for two consecutive years, highlighting the considerable execution risks inherent in the transition to a less oil-dependent budget.

“Hence, while the rebound in the oil price and in oil production has led to oil revenues out performing the 2017 budget target, non-oil tax revenues are still below target with a 30 per cent shortfall for the federal government at the end of September compared to budget and likely a similar situation for states and municipalities.

“The challenges on the revenue side will negatively impact potential growth. Since 2014, the authorities have offset revenue shortfalls with large cuts in much needed capital expenditure, a trend that Moody’s expects to continue.

“In 2017 the government is likely to only match 2016 capital spending that reached N1.2 trillion (or 1.2 per cent of GDP), given the 2017 budget is expected to run on a six-month cycle (for capital expenditures only), as the 2018 budget is likely to be passed in January.

“This is less than 50 per cent of the 2017 budget for capital spending and still an insufficient level to have a meaningful impact on the large infrastructure gap that significantly constrains the country’s potential growth,” the rating agency said.

Furthermore, Moody’s stated that because of the inability to expand the country’s non-oil revenue base, the government’s balance sheet would remain exposed to further shocks.

It also stressed that deficits in the country would remain elevated and debt affordability will remain challenged, despite debt levels remaining contained.

“That exposure will persist notwithstanding the recent improvements in the economy, which are primarily cyclical and related to the strengthening in the oil sector.

“Relatedly, debt service is consuming an ever larger share of government revenue. At the federal level, debt service accounted for 38.2 per cent of total revenues by the end of June, up from 29 per cent in 2014 and 23 per cent in 2013.

“At the broader general government level, the ratio of interest payments to general government revenues peaked at just under 30 per cent in 2016, 10 percentage points above what the rating agency anticipated in December 2016 when it affirmed the previous rating of B1 and over four times higher than the B2 median of 6.6 per cent in 2017.

“Moody’s expects the ratio of interest payments to general government revenues to only slowly decline to 28.4 per cent in 2017,” it added.

PENGASSAN Kicks

But even as the federal government defended its reform initiatives and reeled out plans to boost revenue in 2018 through its partial divestment in the JV oil assets, the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) kicked against the planned sale.

In a statement released by PENGASSAN Wednesday, its National Public Relations Officer, Fortune Obi, urged the National Assembly to reject the plan as it has done in the past, saying it was not in the national interest.

“We will not allow the commonwealth of the country to be given away to cronies of the government all in the name of sale of the assets in the industry to fund the budget,” Obi said.

“No nation can develop, survive or feel secure after selling all its national assets.”
He added that the government should focus on other sources.

“The government should critically evaluate the assets to look at their viability and profitability. Profitable assets such as NLNG (Nigeria Liquefied Natural Gas Company) and shares in the upstream oil and gas JV operations that have become a huge revenue earner for the country and should be kept by the government for the benefit of the Nigerian majority.

“We also advise the government to endeavour to repair assets that are in a state of disrepair, but not to sell them as scrap to some opportunists in the clothes of businessmen and short-sighted politicians,” the PENGASSAN spokesperson said.

President Muhammadu Buhari had Tuesday presented the N8.612 trillion Appropriation Bill for 2018, a 16 per cent increase over N7.441 trillion 2017 budget.

The bulk of the revenue to fund the budget is expected to come from tax receipts and oil revenue, while the rest will be borrowed from external and internal sources.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Government

COVID-19 Vaccine: African Export-Import Bank (Afrexim) to Purchase 270 Million Doses for Nigeria, Other African Nations

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African Export-Import Bank (Afrexim) Approves $2 Billion for the Purchase of 270 million Doses for African Nations

African Export-Import Bank (Afrexim) said it has approved $2 billion for the purchase of 270 million doses of COVID-19 vaccines for African nations, including Nigeria.

Prof. Benedict Oramah, the President of the Bank, disclosed this at a virtual Africa Soft Power Series held on Tuesday.

He, however, stated that the lender is looking to raise more funds for the COVID-19 vaccines’ acquisition.

He said: “The African Union knows that unless you put the virus away, your economy can’t come back. If Africa didn’t do anything, it would become a COVID-19 continent when other parts of the world have already moved on.
“Recall that it took seven years during the heat of HIV for them to come to Africa after 12 million people had died.

“With the assistance of the AU, we were able to get 270 million vaccines and financing need of about $2 billion. Afreximbank then went ahead to secure the $2 billion. But that money for the 270 million doses could only add 15 per cent to the 20 per cent that Covax was bringing.

He added that this is not the time to wait for handouts or free vaccines as other countries will naturally sort themselves out before African nations.

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China Calls for Better China-U.S. Relations

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China Calls for China-U.S. Relations

Senior Chinese diplomat Wang Yi said on Monday the United States and China could work together on issues like climate change and the coronavirus pandemic if they repaired their damaged bilateral relationship.

Wang, a Chinese state councillor and foreign minister, said Beijing stood ready to reopen constructive dialogue with Washington after relations between the two countries sank to their lowest in decades under former president Donald Trump.

Wang called on Washington to remove tariffs on Chinese goods and abandon what he said was an irrational suppression of the Chinese tech sector, steps he said would create the “necessary conditions” for cooperation.

Before Wang spoke at a forum sponsored by the foreign ministry, officials played footage of the “ping-pong diplomacy” of 1972 when an exchange of table tennis players cleared the way for then U.S. President Richard Nixon to visit China.

Wang, a Chinese state councillor and foreign minister, said Beijing stood ready to reopen constructive dialogue with Washington after relations between the two countries sank to their lowest in decades under former president Donald Trump.

Wang called on Washington to remove tariffs on Chinese goods and abandon what he said was an irrational suppression of the Chinese tech sector, steps he said would create the “necessary conditions” for cooperation.

Before Wang spoke at a forum sponsored by the foreign ministry, officials played footage of the “ping-pong diplomacy” of 1972 when an exchange of table tennis players cleared the way for then U.S. President Richard Nixon to visit China.

Wang urged Washington to respect China’s core interests, stop “smearing” the ruling Communist Party, stop interfering in Beijing’s internal affairs and stop “conniving” with separatist forces for Taiwan’s independence.

“Over the past few years, the United States basically cut off bilateral dialogue at all levels,” Wang said in prepared remarks translated into English.

“We stand ready to have candid communication with the U.S. side, and engage in dialogues aimed at solving problems.”

Wang pointed to a recent call between Chinese President Xi Jinping and U.S. President Joe Biden as a positive step.

Washington and Beijing have clashed on multiple fronts including trade, accusations of human rights crimes against the Uighur Muslim minorities in the Xinjiang region and Beijing’s territorial claims in the resources-rich South China Sea.

The Biden administration has, however, signalled it will maintain pressure on Beijing. Biden has voiced concern about Beijing’s “coercive and unfair” trade practices and endorsed of a Trump administration determination that China has committed genocide in Xinjiang.

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U.S. Supreme Court Allows Release of Trump Tax Returns

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President Trump Signs Executive Order In Oval Office Of The White House

U.S. Supreme Court Allows Release of Trump Tax Returns

The U.S. Supreme Court on Monday paved the way for a New York City prosecutor to obtain former President Donald Trump’s tax returns and other financial records as part of a criminal investigation, a blow to his quest to conceal details of his finances.

The justices without comment rebuffed Trump’s request to put on hold an Oct. 7 lower court ruling directing the former Republican president’s longtime accounting firm, Mazars USA, to comply with a subpoena to turn over the materials to a grand jury convened by Manhattan District Attorney Cyrus Vance, a Democrat.

“The work continues,” Vance said in a statement issued after the court’s action.

Vance had previously said in a letter to Trump’s lawyers that his office would be free to immediately enforce the subpoena if the justices rejected Trump’s request.

A lawyer for Trump did not immediately respond to a request for comment.

The Supreme Court, which has a 6-3 conservative majority included three Trump appointees, had already ruled once in the dispute, last July rejecting Trump’s broad argument that he was immune from criminal probes as a sitting president.

Unlike all other recent U.S. presidents, Trump refused during his four years in office to make his tax returns public. The data could provide details on his wealth and the activities of his family real-estate company, the Trump Organization.

Trump, who left office on Jan. 20 after being defeated in his Nov. 3 re-election bid by Democrat Joe Biden, continues to face an array of legal issues concerning his personal and business conduct.

Vance issued a subpoena to Mazars in August 2019 seeking Trump’s corporate and personal tax returns from 2011 to 2018. Trump’s lawyers sued to block the subpoena, arguing that as a sitting president, Trump had absolute immunity from state criminal investigations.

The Supreme Court in its July ruling rejected those arguments but said Trump could raise other objections to the subpoena. Trump’s lawyers then argued before lower courts that the subpoena was overly broad and amounted to political harassment, but U.S. District Judge Victor Marrero in August and the New York-based 2nd U.S. Circuit Court of Appeals in October rejected those claims.

Vance’s investigation, which began more than two years ago, had focused on hush money payments that the president’s former lawyer and fixer Michael Cohen made before the 2016 election to two women – adult-film actress Stormy Daniels and former Playboy model Karen McDougal – who said they had sexual encounters with Trump.

In recent court filings, Vance has suggested that the probe is now broader and could focus on potential bank, tax and insurance fraud, as well as falsification of business records.

In separate litigation, the Democratic-led U.S. House of Representatives was seeking to subpoena similar records. The Supreme Court in July sent that matter back to lower courts for further review.

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