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Nigeria’s Foreign Commercial Loans Rise to $8.8bn



  • 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.

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


US Senate Passes $1.9 Trillion Stimulus Package



US Senate Passes $1.9 Trillion Stimulus Package

President Biden’s $1.9 trillion economic stimulus plan would have far-reaching effects on society as the country tries to turn the corner on a pandemic that has killed more than half a million people in the United States.

The mammoth bill approved by the Senate on Saturday would provide direct payments to Americans, extend jobless benefits and provide a huge financial infusion to states and local governments as well as to schools to help them reopen. It provides funding for priorities like coronavirus testing and vaccine distribution. And it amounts to an ambitious antipoverty program, offering significant benefits for low-income people.

Here’s a guide to what’s included in the plan, which is scheduled to go before the House for final approval on Tuesday and then would head to Mr. Biden for his signature.

Individuals making under $75,000 and married couples making under $150,000 would receive direct payments of $1,400 per person. The bill would also provide $1,400 per dependent.

The payments would gradually decrease above those income levels and disappear entirely above an income cap: $80,000 for individuals and $160,000 for married couples.

Those caps were lowered from the thresholds in the House’s version of the stimulus plan, which set the cutoffs at $100,000 for individuals and $200,000 for married couples.

The Senate bill extends unemployment programs through early September, including the $300-per-week federal supplement provided in the last stimulus plan passed in December.

Mr. Biden had proposed bumping up that supplemental benefit to $400 per week, which the House agreed to, but the Senate kept it at $300 weekly.

The Senate bill also includes a provision intended to avert surprise tax bills for people who lost jobs, waiving federal income taxes for the first $10,200 of unemployment benefits received in 2020 for households earning under $150,000.

For 2021, the bill would temporarily expand the child tax credit, which is currently worth up to $2,000 per child under 17. Under the legislation, the tax credit would be as much as $3,600 for children up to age 5 and as much as $3,000 for children 6 to 17.

The bill would make the full value of the credit available to low-income people who are currently ineligible or receive only a portion. And for the second half of this year, it would have the federal government send advance payments of the credit to Americans in periodic installments, akin to a guaranteed income for families with children.

The legislation would also expand the child and dependent care tax credit for 2021, and it would expand the earned-income tax credit for workers without children for this year as well. Through 2025, it would exempt student loan forgiveness from income taxes.

The bill would provide funding for vaccine distribution as well as coronavirus testing, contact tracing and genomic sequencing. It would give money to the Federal Emergency Management Agency as well.

It would provide $350 billion for states, local governments, territories and tribal governments, and it contains about $130 billion for schools. It also includes funding for colleges and universities, transit agencies, housing aid, child care providers and food assistance.

In addition, the bill contains funding to help businesses, including restaurants and live venues, and it includes a bailout for multiemployer pension plans that are financially troubled.

The bill would temporarily increase subsidies for people purchasing health insurance through the Affordable Care Act’s marketplaces. It includes billions of dollars for public health programs and veterans’ health care.

It also seeks to help those who have lost jobs keep the health insurance coverage they had through their employer, covering the full cost of premiums through a federal program called COBRA through September.

As part of the stimulus plan, Mr. Biden wanted to raise the federal minimum wage, which is now $7.25 per hour, to $15 per hour.

The stimulus bill passed by the House would increase the wage to $15 per hour by 2025, but the Senate parliamentarian said the provision violated the strict rules that Senate Democrats had to follow to pass the bill through a special process that shielded it from a filibuster and allowed for its approval with only Democratic support. A vote in the Senate on Friday to add the wage increase back to the bill failed.

The Senate bill also dropped funding for a rail project in Silicon Valley in Northern California and a bridge between upstate New York and Canada, two provisions that were included in the House bill and drew criticism from Republicans.

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Seplat Petroleum Pays US$564.165 Million to Federal Government in 2020



Seplat Petroleum, an indigenous Nigerian upstream exploration and production company, announced it paid a total sum of US$564.165 million to the Federal Government in 2020.

In the report on payments made available to the Nigerian Stock Exchange and seen by Investors King, Seplat Petroleum paid US$389.576 million to the Nigerian National Petroleum Corporation (NNPC) as production entitlement in 2020.

Production entitlement is the government’s share of production in the period under review from projects operated by Seplat.

This comprises crude oil and gas attributable to the Nigerian government by virtue of its participation as an equity holder in projects within its sovereign jurisdiction (Nigeria).

Also, Seplat paid US$130.009 million to the Department of Petroleum Resources in 2020. A breakdown of the amount showed US$111.633 million was paid as royalties while US$18.376 million was paid as fees.

Similarly, US$579,361 was paid as a fee to the Nigeria Export Supervision Scheme.

The energy company made another payment of US$17.935 million in fee for 2020.

While the Nigerian Content Development and Monitoring Board received US$4.826 million in fee from Seplat in 2020.

Seplat paid US$21.239 million in taxes to the Federal Inland Revenue Service in 2020.

Therefore, Seplat Petroleum paid a total sum of US$564.165 million to the Federal Government in the 2020 financial year. See the details below.

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FIRS Sets N5.9 Trillion Revenue Target for 2021




FIRS to Generate N5.9 Trillion Revenue  in 2021

Mohammed Nami, the Chairman of Federal Inland Revenue Service, FIRS, on Friday said the agency is projecting total revenue of N5.9 trillion for the 2021 fiscal year.

Nami stated this while meeting with the House of Representatives Committee on Finance led by Hon. James Falake on the Service’s 2021 budget defence of its proposed Revenue and Expenditure Estimates.

According to the Chairman, N4.26 trillion and N1.64 trillion were expected to come from non-oil and oil components, respectively.

However, Nami put the cost of collecting the projected revenue at N289.25 billion or 7 percent of the proposed total revenue for the year, higher than the N180.76 billion spent in 2020 to fund the three operational expenditure heads for the year.

He said: “Out of the proposed expenditure of N289.25 billion across the three expenditure heads, the sum of N147.08 billion and N94.97 billion are to be expended on Personnel and Overhead Costs against 2020 budgeted sum of N97.36 billion and N43.64 billion respectively. Also, the sum of N47.19 billion is estimated to be expended on capital items against the budgeted sum of N27.80 billion in 2020. The sum is to cater for on-going and new projects for effective revenue drive.

Speaking on while the agency failed to meet its 2020 target, Nami said “There’s lockdown effect on businesses, implementation directive also for us to study, research best practices on tax administration which involves travelling to overseas and we also have to expand offices and create offices more at rural areas to get closer to the taxpayers, we pay rent for those offices and this could be the reason why all these things went up.

“And if you have more staff surely, their salary will go up, taxes that you’re going to pay on their behalf will go up, the National Housing Fund contribution, PENCOM contribution will go up. Those promoted you have to implement a new salary regime for them. There’s also the issue of inflation and exchange rate differential”, he said.


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