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FG, States Grow External Debt by 114% Under Buhari

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Naira - Investors King
  • FG, States Grow External Debt by 114% Under Buhari

The Federal Government and the 36 states of the federation as well as the Federal Capital Territory grew the country’s external loan commitments from $10.32bn in June 2015 to $22.07bn in March 2018, investigation has shown.

This reflects an increase of $11.76bn or 113.94 per cent growth in the country’s external debt within 33 months. The period is within the presidency of Muhammadu Buhari, as he took over the reins of government on May 29, 2015.

In naira terms, statistics obtained from the Debt Management Office in Abuja on Monday showed that the country’s external loans rose from N2.03tn as of June 31, 2015 to N6.75tn as of March 31, 2018. This reflects an increase of 232.51 per cent.

The difference, when the external debt is denominated in naira, reflects the beating that the local currency has taken since 2014 following the dwindling of the nation’s capacity to accumulate foreign currencies as a result of the steep fall in the price of crude oil, the main foreign exchange earner for the country.

The domestic debt of the country rose from N10.09tn as of June 2015 to N15.96tn as of March 2018. This reflects an increase of N5.87tn or 58.23 per cent within the period of analysis.

Taken together, the country’s public debt rose from N12.12tn as of June 31, 2015 to N22.71tn as of March 31, 2018. This reflects a difference of N10.59tn or a percentage increase of 87.37 per cent within a period of 33 months.

Broken down, the Federal Government component of the domestic loans stood at N12.58tn, while the states’ component stood at N3.38tn as of March 2018.

The increasing percentage of the external loans is a reflection of the country’s current debt management strategy, which targets to raise the debt ratio to 40 per cent external and 60 per cent local.

As of June 2015, the ratio stood at 16.77 per cent for external and 83.23 per cent for domestic. As of March 2018, it stood at 27.71 per cent external and 72.29 per cent domestic. Currently, there are ongoing foreign loans deals and negotiations that can bring the nation nearer to the 40 per cent target.

The country’s Debt Management Strategy 2016–2019 made a case for an increase in external financing with a view to rebalancing the public debt portfolio in favour of long-term external financing in order to reduce the debt service cost and lengthen the maturity profile.

In the document, the DMO stated, “To achieve a significant reduction in cost would require that the government accesses relatively cheaper long-term external financing in such a way that it first maximises the available funds from the concessional and semi-concessional sources, taking into account what may be readily available within a given period, after which other external sources would be accessed.

“Further lengthening of the maturity profile of the domestic debt portfolio through reduction in the issuance of new short-dated debt instruments or refinancing of maturing NTBs with external financing or both.

“Although the impact on cost of the introduction of new debt instruments into the domestic debt market is expected to be relatively small, the impact on maturity profile of total domestic debt could be significant; hence, reducing the risk of bunching, roll-over risk, and the associated debt servicing costs.”

The Federal Government had in 2017 borrowed from the international capital market to refinance $3bn maturing domestic debts as part of its overall debt management strategy of reducing debt service costs.

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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Economy

Nigeria’s Plan to Review Oil Companies’ Gas Flaring Strategies

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Oil

Nigeria is ramping up its efforts to address environmental concerns in the oil and gas sector with a comprehensive plan to review gas flaring strategies of international and indigenous oil companies.

The Minister of State for Environment, Dr. Iziaq Salako, announced this initiative during a national stakeholders engagement meeting on methane mitigation and reduction held in Abuja, Investors King reports.

Gas flaring, a common practice in the oil industry, releases methane—a potent greenhouse gas—into the atmosphere, contributing to climate change and posing health risks to communities near oil facilities.

Nigeria aims to end routine gas flaring by 2030, aligning with global climate goals and commitments.

Dr. Salako explained the importance of reducing methane emissions and highlighted the detrimental effects on public health, food security, and economic development.

He outlined practical steps being taken to tackle methane emissions, including the development of methane guidelines and the engagement of government institutions.

The ministry, through the National Oil Spill Detection and Response Agency, will conduct periodic reviews of oil companies’ plans to ensure compliance with the gas flaring deadline.

Deloitte management consultants will assist in conducting comprehensive forensic audits to scrutinize the legitimacy of forward-contracted transactions.

President Bola Tinubu’s commitment to environmental sustainability underscores the government’s dedication to addressing climate change and fulfilling its multilateral environmental agreements.

The engagement event served as a platform for stakeholders to discuss methane mitigation strategies, existing policies, and implementation challenges.

Collaboration and dialogue among diverse sectors are crucial in charting a unified course towards sustainable methane reduction in Nigeria’s oil and gas industry.

As the country navigates its environmental agenda, ensuring accountability and transparency in gas flaring practices remains paramount for achieving a greener and healthier future.

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Economy

Interest Rate Jumps to 24.75% as CBN Takes Aggressive Stance Against Inflation

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Dr. Olayemi Michael Cardoso

The Central Bank of Nigeria (CBN) has announced a significant increase in the monetary policy rate, known as the interest rate, to 24.75%.

This move disclosed by CBN Governor Olayemi Cardoso during the 294th Meeting of the Monetary Policy Committee press briefing in Abuja, represents a bold step by the apex bank to address the mounting inflationary pressures faced by the country.

With inflation soaring to 31.70% in February, the CBN aims to moderate this upward trend by tightening its monetary policy stance.

This decision follows the previous hike in the interest rate to 22.75% in February, showcasing the CBN’s commitment to combatting inflationary forces.

While the bank opted to maintain the Cash Reserve Ratio at 45%, the significant increase in the interest rate underscores the urgency of the situation and the need for decisive action.

Governor Cardoso emphasized that these measures are essential to stabilize the economy and safeguard the purchasing power of the Nigerian currency.

The 294th MPC marks the second meeting under Governor Cardoso’s leadership, indicating a proactive approach to addressing economic challenges.

The next MPC meeting is scheduled for May 20th and 21st, 2024, highlighting the ongoing commitment of the CBN to navigate Nigeria’s economic landscape amidst inflationary pressures.

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Economy

Nigeria Braces for 10th Consecutive Interest Rate Hike by Central Bank

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Central Bank of Nigeria (CBN)

As Nigeria grapples with persistently high inflation, the Central Bank of Nigeria (CBN) is gearing up to implement its tenth consecutive interest rate hike in a bid to curb the soaring prices and attract investment.

Analysts surveyed by Bloomberg are anticipating a substantial 125 basis-point increase in the key rate to 24%, marking one of the most significant adjustments in the current tightening cycle.

The decision, expected to be announced by Governor Olayemi Cardoso on Tuesday at 2 p.m. in Abuja, comes on the heels of inflation accelerating to 31.7% in February, far surpassing the central bank’s target range of 9%.

This surge has been primarily attributed to the sharp depreciation of the naira, prompting authorities to devalue the currency twice since June to narrow the gap with the unofficial market rate and encourage investor confidence.

While these measures have seen the naira strengthen in recent days and bolstered investment inflows, including a fourfold increase in overseas remittances and significant foreign investor portfolio asset purchases, there remains a palpable need for more decisive action.

Giulia Pellegrini, a senior portfolio manager at Allianz Global Investors, emphasized the necessity for the CBN to intensify its tightening efforts to regain foreign investors’ confidence in the local bond market.

While acknowledging the positive strides made by the central bank, Pellegrini stressed the importance of a more assertive approach to prevent the diversion of investor attention to other frontier markets.

As the Nigerian economy navigates through these challenging times, the impending interest rate hike signals the CBN’s determination to address inflation head-on and foster a more stable economic environment.

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