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Senate Approves $5.5bn Foreign Loan as External Debt Rises to $15.4bn

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  • Senate Approves $5.5bn Foreign Loan as External Debt Rises to $15.4bn

The Senate Tuesday approved the request by the executive to raise $3 billion from the international capital market (ICM) through a Eurobond or Diaspora Bond issue or a combination of both to refinance maturing domestic debts, and raise another $2.5 billion from multilateral donor institutions to fund the capital component of the 2017 budget.

The approval coincided with the latest data released by the Debt Management Office (DMO) Tuesday showing that Nigeria’s debt stock hit N20 trillion as of September 30, 2017, with the foreign component accounting for 23.04 per cent or N4.694 trillion ($15.40 billion) of the total debt stock.

The approval by the Senate followed the adoption of the recommendations of its Committee on Local and Foreign Debts chaired by Senator Shehu Sani (Kaduna, APC).

But before the loan request was approved, the Deputy President of the Senate, Senator Ike Ekweremadu, who presided over Tuesday’s plenary, had charged the DMO to monitor Nigeria’s debt profile to ensure it remains within acceptable limits.

“Let me state clearly that this Senate will continue to partner with the federal government on matters that concern the ordinary people of Nigeria. The implementation of the 2017 budget is key because any Appropriation Act that is not implemented is worthless,” he said.

Senator Yusuf Abubakar Yusuf (Taraba APC) said while borrowing to refinance local debt could be deemed a good model, the government must be careful as its workability would depend on Nigeria’s foreign reserves and exchange rate stability.

“If our foreign exchange rate is very low, if it fall as low as N500 to a dollar, we are going to have a very serious challenge generating enough foreign exchange to pay our foreign debt.

“We have to be seen to be a lot more cautious, not just saying that the interest rate (for external borrowing) is low and the cost of refinancing the loan will be low.

“We must also take cognisance of the fact that whatever happens will have an impact on our foreign exchange rate,” Yusuf said.

Also contributing to the debate, Senator Gbenga Ashafa (Lagos APC) said the loan was critical to the success of the 2017 budget.

“If we consider the projects that these loans are supposed to fund, they are spread across all the geopolitical zones. They covers power, rail, roads, water and others,” he said.

Last October, President Muhammadu Buhari had sought expeditious approval of the foreign loan request.

Some of the projects to be funded from the loans include the Mambilla hydropower project, second runway at the Nnamdi Azikiwe International Airport, Abuja, counterpart funding for rail projects, and the construction of the Bodo-Bonny road.

Also at plenary Tuesday, the Senate mandated its Committees on Finance and Banking, Insurance and Financial Institutions to investigate allegations of unremitted revenue from stamp duties in the last five years.

This, it said, was due to the need to harness all sources of revenue to the government and curb all forms of wastefulness, corruption and diversion of funds.

The resolution followed a motion sponsored by Senator John Owan Enoh (Cross River, PDP) and 11 others who expressed concern over report by the School of Banking Honours that showed that over N7 trillion in stamp duties from cashless transactions remained unpaid to the federation since 2015.

The motion stated: “Worried that the provision for stamp duty in the revenue framework of the nation’s annual budget for 2015, 2016 and 2017 had been N8.713 billion, N66.138 billion and N16.96 billion, respectively despite the above report.

“We have been apprised of the anti-stamp duties collection stance of the Nigerian inter-Bank Settlement System (NIBSS) which is currently being accused of systemic diversion of huge revenue flows from stamp duty collection on electronic transfer receipts on online banking transactions and the necessity to demand notice on all unremitted stamp duties.”

Owan also queried how the projection on stamp duties dropped from N66 billion in 2016 to N16.9 billion in 2017.

Adopting the prayers of the motion, the Senate commended the School of Banking Honours for bringing the issue of unremitted revenue from stamp duties to the public’s notice, and for insisting on probity of the NIBSS.

The School of Banking Honours is a body corporate approved through registration by the Nigerian Copyrights Commission, to research into banking operations, facilitate collaboration between banks, ensure collaboration between banks and the government, and represent the government in facilitating the imposition and monitoring of stamp duties on all electronic cash transactions.

Total Debt Rises to N20tn

Meanwhile, data released Tuesday by the DMO has shown that Nigeria’s total public debt stock, comprising the federal government, states and the Federal Capital Territory (FCT) stood at N20.373 trillion as of September 30, showing a marginal increase of 3.6 per cent from N19.637 trillion as of June 30.

A breakdown of the country’s debt stock, according to a statement, indicated that domestic debt accounted for 76.96 per cent of the total debt stock while external debt accounted for 23.04 per cent.

The DMO put the domestic debt stock at N15.679 trillion, an increase of 4.1 per cent compared with N15.034 trillion as of June 30.

On the other hand, external debt stock stood at N4.694 trillion ($15.390 billion), reflecting a marginal rise of 1.9 per cent from N4.602 trillion as of June 30.

“The debt data lends credence to the government’s claims that the public debt stock is skewed in favour of domestic debt which is partly responsible for the high debt service figures,” the statement explained.

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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Minister of Power Pledges 6,000 Megawatts Electricity Generation in Six Months

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Adebayo Adelabu has made a bold pledge to ramp up electricity generation to 6,000 megawatts (MW) within the next six months.

This announcement comes amidst ongoing efforts to tackle the longstanding issue of inadequate power supply that has plagued the country for years.

During an appearance on Channel Television’s Politics Today program, Adelabu said the government is committed to resolving the issues hindering the power sector’s efficiency.

He expressed confidence in the administration’s ability to overcome the challenges and deliver tangible results to the Nigerian populace.

Currently, Nigeria generates and transmits over 4,000MW of electricity with distribution bottlenecks being identified as a major obstacle.

Adelabu assured that steps are being taken to address these distribution challenges and ensure that the generated power reaches consumers across the country effectively.

The minister highlighted that the government has been proactive in seeking the expertise of professionals and engaging stakeholders to identify the root causes of the power sector’s problems and devise appropriate solutions.

Adelabu acknowledged the existing gap between Nigeria’s installed capacity of 13,000MW and the actual generation output, attributing it to various factors that have impeded optimal performance.

Despite these challenges, he expressed optimism that the government’s initiatives would lead to a substantial increase in electricity generation, marking a significant milestone in Nigeria’s energy sector.

Addressing concerns about the recent decline in power generation due to low gas supply, Adelabu assured Nigerians that measures are being taken to rectify the situation.

He acknowledged the impact of power outages on citizens’ daily lives and reiterated the government’s commitment to providing stable electricity supply within the stipulated timeframe.

The Minister’s assurance of achieving 6,000MW of electricity generation in the next six months comes as a ray of hope for millions of Nigerians who have long endured the consequences of inadequate power supply.

With ongoing reforms and targeted interventions, there is optimism that Nigeria’s power sector will witness a transformative change, ushering in an era of improved access to electricity for all citizens.

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Nigeria’s Economic Woes to Drag Down Sub-Saharan Growth, World Bank Forecasts

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The World Bank’s latest report on the economic outlook for Western and Central Africa has highlighted Nigeria’s sluggish economic growth as a significant factor impeding the sub-region’s overall performance.

According to the report, while economic activities in the region are expected to increase, Nigeria’s lower-than-average growth trajectory will act as a hindrance to broader economic expansion.

The report indicates that economic activity in Western and Central Africa is set to rise from 3.2 percent in 2023 to 3.7 percent in 2024 and further accelerate to 4.2 percent in 2025–2026.

However, Nigeria’s growth, projected at 3.3 percent in 2024 and 3.6 percent in 2025–2026, falls below the sub-region’s average.

The World Bank underscores the importance of macroeconomic and fiscal reforms in Nigeria, which it anticipates will gradually yield results.

It expects the oil sector to stabilize with a recovery in production and slightly lower prices, contributing to a more stable macroeconomic environment.

Despite these measures, the report emphasizes the need for structural reforms to foster higher growth rates.

In contrast, economic activities in the West African Economic and Monetary Union are projected to increase significantly, with growth rates of 5.9 percent in 2024 and 6.2 percent in 2025.

Solid performances from countries like Benin, Côte d’Ivoire, Niger, and Senegal are cited as key drivers of growth in the region.

The report also highlights the importance of monetary policy adjustments and reforms in supporting economic growth.

For instance, a more accommodative monetary policy by the Central Bank of West African States is expected to bolster private consumption in Côte d’Ivoire.

Also, investments in sectors such as agriculture, manufacturing, and telecommunications are anticipated to increase due to improvements in the business environment.

However, Nigeria continues to grapple with multidimensional poverty as highlighted by the National Bureau of Statistics.

Over half of Nigeria’s population is considered multidimensionally poor, with rural areas disproportionately affected. The World Bank underscores the need for concerted efforts to address poverty and inequality in the country.

Sub-Saharan Africa as a whole faces challenges in deepening and lengthening economic growth. Despite recent progress, growth remains volatile, and poverty rates remain high.

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Fitch Downgrades China’s Outlook to Negative Amid Real Estate Slump

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Fitch Ratings has downgraded China’s economic outlook to negative, citing concerns over the country’s mounting debt and the ongoing slump in its real estate sector.

This decision casts a shadow over China’s economic recovery efforts and raises questions about the resilience of its financial system in the face of mounting challenges.

The downgrade comes at a critical juncture for China as the government grapples with the fallout from a prolonged downturn in the real estate market, which has long been a cornerstone of the country’s economic growth.

Fitch’s decision underscores the severity of the challenges facing China’s economy and the urgent need for policymakers to implement effective measures to address the underlying issues.

Amid growing uncertainty about the outlook for the world’s second-largest economy, Fitch warned that the Chinese government is likely to accumulate more debt as it seeks to stimulate economic growth and mitigate the impact of the real estate slowdown.

The agency’s negative outlook reflects concerns that China’s debt burden could continue to rise, posing risks to the stability of its financial system.

The real estate sector, which has been a key driver of China’s economic growth in recent decades, has been experiencing a pronounced slowdown in recent months.

This downturn has been exacerbated by government measures aimed at curbing speculative investment and addressing housing affordability concerns. As property prices continue to decline and housing sales stagnate, fears of a broader economic slowdown have intensified.

China’s government has sought to downplay concerns about the impact of the real estate slump on the broader economy, emphasizing its commitment to maintaining stability and pursuing sustainable growth.

However, Fitch’s downgrade suggests that the challenges facing China’s economy may be more significant than previously thought and require a more comprehensive and coordinated policy response.

The negative outlook from Fitch follows a similar move by Moody’s Investors Service in December, highlighting the growing consensus among rating agencies about the risks facing China’s economy.

While financial markets initially showed little reaction to Fitch’s announcement, analysts warn that the downgrade could weigh on market sentiment in the near term, especially as investors await key economic indicators due to be released in the coming weeks.

China’s public debt has surged in recent years, fueled by government stimulus measures aimed at supporting economic growth and offsetting the impact of the COVID-19 pandemic.

With public debt nearing 80% of gross domestic product (GDP) as of mid-last year, according to the Bank for International Settlements, concerns about the sustainability of China’s debt levels have been mounting.

Despite these challenges, China’s sovereign bond market remains relatively insulated from external pressures, with foreign ownership accounting for a small fraction of total holdings.

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