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Huge Debt Service Cost in Nigeria, Others, Worries Moody’s

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Moody's
  • Huge Debt Service Cost in Nigeria, Others, Worries Moody’s

The elevated public debt-service cost in Nigeria and some other countries in Africa calls for concern, Moody’s Investors Service stated in a report at the weekend.

The region’s debt-servicing cost on weighted-average basis increased to almost to 12.3 per cent of revenue in 2017 from seven per cent in 2013, and was expected to hover at around 13per cent in the medium term, one of the leading global rating agencies revealed.

Moody’s noted that while this largely reflects a sharp fall in revenue and increasing borrowing costs for oil exporters, particularly Nigeria, interest costs relative to revenue were escalating across the region.

Also, Moody’s stated that the outlook for sovereign ratings in Nigeria and other countries in sub-Saharan Africa, were negative for the coming 12-18 months, driven by the region’s subdued and fragile growth recovery, which also weighs on the prospects for fiscal consolidation and debt stabilisation.

It stated this in a report titled: “Sovereigns — sub-Saharan Africa, 2018 outlook negative amid subdued growth, elevated debt and political risks.”

“Our negative outlook for sub-Saharan African sovereigns reflects the region’s subdued growth recovery, fiscal challenges and heightened political risks,” Moody’s Vice President — Senior Analyst and the report’s co-author, Zuzana Brixiova said.

“Higher and more stable global growth will provide limited uplift to Africa’s growth because commodity prices are still low and there are domestic structural bottlenecks.

“Risks stemming from government balance sheet pressures and liquidity stress as well as external imbalances remain elevated, while domestic political tensions increase policy uncertainty and impede reforms.”

Moody’s expects growth in sub-Saharan Africa to accelerate to 3.5 per cent in 2018 from an estimated 2.6 per cent in 2017, supported by the strengthening global economy and a modest rise in commodity prices.

However, it noted that the recovery remains fragile, uneven and sub-par and barely above population growth. Falling productivity, reflecting relatively low investment and the challenging business environment, will also weigh on longer-term trends.

“In 2018, most Moody’s-rated sovereigns in the region are expected to stabilise their fiscal deficits, but at higher levels than were seen before the commodity price shock. The region is thus unlikely to see a decisive reversal in elevated debt levels given the countries’ consolidation challenges, increased interest costs and subdued growth.

“Debt accumulation is likely to slow in 2018 and beyond due to improved (but still relatively low) commodity prices and some fiscal consolidation, but a return to 2013 debt-to-GDP levels will be challenging at a time of modest growth in the region.

“Currency risks will remain heightened in countries with large shares of foreign currency public debt. Reserve buffers will provide only limited mitigation. As Sub-Saharan African countries approach the peak of maturing international debt in the early 2020s, refinancing risks will continue to rise,” it noted.

Government liquidity stress – a key driver of Moody’s past rating actions in the region, according to the report, remained heightened especially among commodity-dependent sovereigns. It continues to be driven by elevated fiscal deficits and challenging funding conditions, where greater reliance on domestic financing has increased borrowing costs.

It, however, noted that income levels have deteriorated in a number of countries in the region, increasing pressure on governments to extend subsidies, or constraining the government’s ability to remove subsidies as intended.

The report noted that high levels of urbanisation and sizeable young populations, if matched with skilled labour force and job creation, would accelerate industrialisation in Africa.

“It would also help raise productivity via innovation and economies of scale, particularly in middle-income countries in southern Africa. An emerging middle class would also strengthen aggregate domestic demand. Seizing the opportunities provided by these demographic trends (youth, urbanization, emergence of middle class) is not assured and hinges on delivering on broader structural reform agenda,” it added.

According to the agency, deteriorating wealth levels across the region would increase pressure on governments to implement populist measures, such as the 2017 decision to extend free higher education in South Africa. Moreover, it stated that a gradually expanding and more educated and globally interconnected middle class would increase calls for greater accountability and more prosperous, equitable and well governed economies.

“However, social tensions cannot be easily assuaged through either fiscal stimulus or redistributive spending given governments’ limited resources amid fiscal tightening. Droughts and rising food prices in eastern and southern Africa are often sources of unrest. Separately, long-serving political leaders amplify succession risk in Uganda and Rwanda.”

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 Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Crude Oil

Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Energy

Nigeria Targets $5bn Investments in Oil and Gas Sector, Says Government

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Crude Oil - Investors King

Nigeria is setting its sights on attracting $5 billion worth of investments in its oil and gas sector, according to statements made by government officials during an oil and gas sector retreat in Abuja.

During the retreat organized by the Federal Ministry of Petroleum Resources, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, explained the importance of ramping up crude oil production and creating an environment conducive to attracting investments.

He highlighted the need to work closely with agencies like the Nigerian National Petroleum Company Limited (NNPCL) to achieve these goals.

Lokpobiri acknowledged the challenges posed by issues such as insecurity and pipeline vandalism but expressed confidence in the government’s ability to tackle them effectively.

He stressed the necessity of a globally competitive regulatory framework to encourage investment in the sector.

The minister’s remarks were echoed by Mele Kyari, the Group Chief Executive Officer of NNPCL, who spoke at the 2024 Strategic Women in Energy, Oil, and Gas Leadership Summit.

Kyari stressed the critical role of energy in driving economic growth and development and explained that Nigeria still faces challenges in providing stable electricity to its citizens.

Kyari outlined NNPCL’s vision for the future, which includes increasing crude oil production, expanding refining capacity, and growing the company’s retail network.

He highlighted the importance of leveraging Nigeria’s vast gas resources and optimizing dividend payouts to shareholders.

Overall, the government’s commitment to attracting $5 billion in investments reflects its determination to revitalize the oil and gas sector and drive economic growth in Nigeria.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm Oil - Investors King

Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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