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Nigeria’s Foreign Commercial Loans Rise to $8.8bn

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  • Nigeria’s Foreign Commercial Loans Rise to $8.8bn

Nigeria’s exposure to commercial loans has risen by 486.67 per cent in the last three years as the loans now make up 39.87 per cent of the country’s external debt portfolio as of March 31.

The nation’s foreign commercial loans have risen to $8.8bn, an analysis of data obtained from the Debt Management Office has shown.

A further analysis of the debt statistics shows that the commercial debts make up 39.87 per cent of the nation’s $22.07bn external exposure.

Three years ago, March 31, 2015, the country’s exposure to foreign commercial loans stood at $1.5bn. This means that in the last three years, the country’s exposure to foreign commercial loans has grown by $7.3bn or 486.67 per cent.

As of March 31, 2015, commercial loans made up 15.85 per cent of the nation’s total foreign debt commitment of $9.46bn.

The Federal Government has had to make a detour on its commitment to take only concessional loans, given the relative decline in concessional sources of loans.

The difference between commercial loans and concessional loans, is that the former comes with higher interest rates and could vacillate in accordance with market rates.

Concessional loans, usually issued by multilateral agencies, come with negligible or small interest rates and may come with extended moratorium. Moratorium is a period of grace within which repayment of the principal capital is suspended.

Conversely, commercial loans have faster periods of maturity within which the debt must be repaid or renegotiated. While some commercial loans have maturity ranging from five years to 15 years, concessional loans can have a moratorium of up to 40 years.

On the other hand, multilateral organisations hold 49.52 per cent of the country’s external debt portfolio while bilateral debts make up $2.34bn or 10.61 per cent of the country’s external debt exposure.

With a commitment of $8.52bn, the World Bank is responsible for 38.6 per cent of the country’s foreign portfolio.

Apart from the World Bank Group, Nigeria is also exposed to some other multilateral organisations such as the African Development Bank with a portfolio of $1.32bn and the African Development Fund with a portfolio of $835.14m.

Others are the International Fund for Agricultural Development with a portfolio of $160.38m; the Arab Bank for Economic Development with a portfolio of $5.88m; the EDF Energy (France) with a portfolio of $70.28m and the Islamic Development Bank with a portfolio of $17.5m.

The bilateral agencies to which the country is indebted to include the Export Import Bank of China with a portfolio of $1.9bn, the Agence Francaise de Developpement with a portfolio of $274.98m, the Japan International Cooperation Agency with a portfolio of $77.6m and Germany with a portfolio of $92.94m.

The increase in commercial loans reflects the recent trend that has seen the Federal Government increasingly issuing bonds denominated in dollars in the international capital market to raise required capital to fund budget gaps.

The commercial loans constitute $8.5bn Eurobonds while the Diaspora Bond through which the Federal Government borrows from Nigerians living abroad constitutes $300m.

The Head, National Advocacy, Social Development Integrated Centre, Mrs Vivian Bellonwu-Okafor, said the increase in the nation’s external loans generally had far-reaching economic implications.

For a country like Nigeria where inflationary trend had been very volatile, the increase had reduced the value of local currency, she said, adding that this made the ability to repay the debt difficult.

She said, “It also means Nigeria’s balance of payment will be unfavourable as more money will leave its economy than it is earning.

“Added to this is the fact that as most of the country’s resources, which hitherto would have been applied to infrastructural development and thus engendering economic growth, will now be used in servicing the monstrous loans.

“On the other hand, therefore, the economy will witness, as it is doing already, poor capital investments which will in the long run affect national income as well as the per capita income of the average citizens. The effect of this is not farfetched: stunted GDP growth.

“So from any given angle anyone looks at it, amassing debt in the form of loans spells doom and disaster, especially for a country like Nigeria where historically, accountability on the management of public loans has been at bottom levels.”

The Head of Banking and Finance at the Nasarawa State University, Keffi, Prof Uche Uwaleke, attributed the trend to the need to rebalance the ratio of domestic debt with foreign debt but warned of possible negative outcomes.

He said, “The significant increase in foreign commercial loans, essentially Eurobonds, is the fallout of the government’s strategy of gradually rebalancing the country’s debt stock in favour of external loans.

“The merit of this strategy lies in the fact that external loans have proved cheaper than domestic debts in recent times. It is hoped therefore that a greater resort to external loans in financing budget deficits will help bring down the high cost of debt servicing, which is becoming unsustainable.

“Be that as it may, the fact that the foreign loans have been more from commercial sources than multilateral or even bilateral sources should be a cause for concern. This is because commercial loans such as Eurobonds are relatively expensive to service.”

He also said, “For a mono-product economy whose forex receipts is vulnerable to external shocks, over-exposure to foreign commercial loans could prove fatal to economic growth due to exchange rate volatility.

“Another downside of commercial credits is that, unlike loans from the World Bank or African Development Bank, they are not project-tied. As a result, it is difficult to measure their impact on economic development.

“So, while the strategy to reduce debt servicing cost by turning to cheaper foreign loans is commendable, government should focus more effort on accessing project-tied concessional loans from multilateral and bilateral sources.”

Uwaleke said that too much resort to external commercial debts could once again plunge Nigeria into debt as was the case prior to the country’s liberation from the Paris Club debt stranglehold in 2005.

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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