Connect with us

Economy

Rising Debt, External Reserves Decline Slow Economy

Published

on

nigeria economy
  • Rising Debt, External Reserves Decline Slow Economy

The recent rise in the nation’s debt profile and continued decline in the external reserves are slowing down the recovery and growth of the economy.

Experts attribute the disturbing situation to the approaching general elections in February next year and the exit of foreign portfolio investors for fear of losing their investments.

The International Monetary Fund in March 2018 identified the major problems of the Nigerian economy as huge fiscal deficit, low economy diversification, increasing domestic risks, and rising banking sector risks, all of which still persist till date, according to an investigation by our correspondent.

The IMF report, titled ‘Article IV consultation on Nigerian economy for 2018’, noted that increasing debt accumulation by the government was an indication of weak revenue mobilisation by the government.

It was discovered that despite the tax drive of the current government, it still heavily relied on external debts to fund its annual budget.

For instance, the Minister of Budget and National Planning, Senator Udo Udoma, has said the Federal Government will borrow N1.6tn to finance part of the N9.12tn 2018 budget. And of the amount, N793bn would be borrowed domestically, while N849bn would be borrowed from foreign sources.

The nation’s total debt stood at $74.2bn (N22.7tn), according to data from the Debt Management Office on August 10.

On June 21, 2018 the DMO said the public debt increased from N21.73tn ($71bn) in December 2017 to N22.71tn ($74.28bn) as of the end of the first quarter of 2018.

According to the IMF, bonds-raising programmes of the government have also crowded out the private sector, reducing the credit-raising opportunities for private businesses.

It expressed concerns over the country’s high dependence on oil sector, saying the country was dragged into and brought out of recession by one sector – oil and gas.

Experts note that surplus revenue from oil proceeds, expected to be kept in the Excess Crude Account, is often depleted with no tangible explanation.

A professor of Economics at the University of Nigeria, Nsukka, Hyacinth Ichoku, said the decline in external reserves could be as a result of the forthcoming elections.

He said politicians would be doing a lot of borrowing to impress the populace and their constituencies.

According to him, the demand for reserves would worsen as the elections draw nearer.

He said that the withdrawal of funds from the economy by foreign investors due to fear of losing their investments and the reduced level of production of crude oil could also be the reasons for the decline in the reserves and increased debt.

He, however, noted that the negative effect and impact of these activities would not be felt until after the elections.

The nation’s external reserves have been declining for three consecutive months, from $47.852bn on May 9, 2018 to $46.759bn on August 8, 2018, losing $1.093bn.

The IMF, in the report, stated that there were many banking sector vulnerabilities, and advised that they should be contained.

Although it lauded the move by the Central Bank of Nigeria to increase capital buffers of weak banks by preventing dividends payment, more efforts were needed to drive the economic growth.

The Managing Director, Cowry Asset Management Limited, Johnson Chukwu, said the decline in external reserves could be attributed to the exit of foreign portfolio investors.

According to him, the exit of foreign portfolio investors is having a direct impact on the reserves, and is the major thing driving down the external reserves.

He said the exit was expected as investors might not want to continue to hold assets until after elections.

“The political crisis that we have seen in the past few days can also be a reason for the exit of foreign porfolio investors; but I have no fear or predictions that this would lead to any economic crisis,” Chukwu added.

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.

Continue Reading
Comments

Economy

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

Published

on

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.

Continue Reading

Economy

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

Published

on

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.

Continue Reading

Economy

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

Published

on

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.

Continue Reading
Advertisement




Advertisement
Advertisement
Advertisement

Trending