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Economy

Rising Debt, External Reserves Decline Slow Economy

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  • 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.

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

Economy

Nigeria, Morocco sign MOUs on Hydrocarbons, Others

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The Federal Government and the Kingdom of Morocco have signed five strategic Memoranda of Understanding that will foster Nigerian-Morocco bilateral collaboration and promote the development of hydrocarbons, agriculture, and commerce in both countries.

The Minister of State for Petroleum Resources, Chief Timipre Sylva, led the Nigerian delegation to the agreement signing ceremony on Tuesday at Marrakech, Morocco, while the Chief Executive Officer of OCP Africa, Mr Anouar Jamali, signed for the Kingdom of Morocco, according to a statement by the Nigerian Content Development and Monitoring Board.

Under the agreement between OCP, NSIA and the Nigerian National Petroleum Corporation, Nigeria will import phosphate from the Kingdom of Morocco and use it to produce blended fertiliser for the local market and export.

The statement said Nigeria would also produce ammonia and export to Morocco.

“As part of the project, the Nigerian Government plans to establish an ammonia plant at Akwa Ibom State,” it said.

The Executive Secretary of NCDMB, Mr Simbi Wabote, and the Group Managing Director of NNPC, Mallam Mele Kyari, were part of the delegation and they confirmed that their organisations would take equity in the ammonia plant when the Final Investment Decision would be taken, the statement said.

Sylva said the project would broaden economic opportunities for the two nations and improve the wellbeing of the people.

He added that the project would also positively impact agriculture, stimulate the growth of gas-based industries and lead to massive job creation.

He said the President, Major General Muhammadu Buhari (retd.), had mandated the Ministry of Petroleum Resources and it agencies and other government agencies to give maximum support for the project.

“He mandated me to ensure that at least the first phase of this project is commissioned before the expiration of his second term in office in 2023,” he added.

According to the statement, the MOUs were for the support of the second phase of the Presidential Fertiliser Initiative; Shareholders Agreement for the creation of the joint venture company to develop the multipurpose industrial platform and MOU for equity investment by the NNPC in the joint venture and support of the gas.

Other agreements are term sheet for gas sales and aggregation agreement and MOU for land acquisition and administrative facilitation to the establishment of the multipurpose industrial platform for gas sales and aggregation agreement.

The NCDMB boss described the bilateral agreement as significant to the Nigerian economy as it would accelerate Nigeria’s gas monetisation programme through establishment of the ammonia plant in the country.

The agreement would also improve Nigeria’s per capita fertiliser application through importation of phosphate derivatives from Morocco, he added.

Wabote challenged the relevant parties to focus on accelerating the FID, assuring them that the NCDMB would take equity investment for long-term sustainability of the project.

He canvassed for the setting up of a project management oversight structure to ensure project requirements and timelines are met.

“There is also need to determine manpower needs for construction and operations phase of the project and develop training programmes that will create the workforce pool from Nigeria and Morocco and design collaboration framework between research centres in Nigeria and Morocco to develop technology solutions for maintaining the ISBL and OSBL units of the Ammonia complex,” he said.

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Economy

Dangote Fertiliser Plant to Commence Shipment of Urea in March 2021

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Dangote to Sells Petrol in Naira, Plans to Commence Urea Shipment in March 2021

The Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, has said Dangote Fertiliser Plant will commence shipment of Urea in March 2021.

The CBN governor disclosed this during an inspection tour of the sites of Dangote Refinery, Petrochemicals Complex Fertiliser Plant and Subsea Gas Pipeline at Ibeju Lekki, Lagos on Saturday.

Emefiele further stated that Dangote Refinery would sell refined petroleum products in Naira when it starts production.

This he said would save the country from spending 41 percent of the nation’s foreign exchange on importation of petroleum products yearly.

Based on agreement and discussions with the Nigerian National Petroleum Corporation and the oil companies, the Dangote Refinery can buy its crude in naira, refine it, and produce it for Nigerians’ use in naira,” Mr Emefiele said.

That is the element where foreign exchange is saved for the country becomes very clear. We are also very optimistic that by refining this product here in Nigeria, all those costs associated with either demurrage from import, costs associated with freight will be totally eliminated.

Emefiele explained that this will make the price of Nigeria’s petroleum products affordable and cheaper in naira.

If we are lucky that what the refinery produces is more than we need locally you will see Nigerian businessmen buying small vessels to take them to our West African neighbours to sell to them in naira.

“This will increase our volume in naira and help to push it into the Economic Community of West African States as a currency,” Mr Emefiele said.

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Economy

UK Budget 2021: Will Sunak’s Budget Run Into Unintended Consequences?

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Rishi Sunak’s Budget will encourage higher earners to consider their “international financial options” and will drive businesses away from the UK, warns the CEO of one of the world’s largest independent financial advisory and fintech organizations.

The warning from Nigel Green, chief executive and founder of deVere Group, comes as the Chancellor delivered his 2021 Budget in the House of Commons, his second since he took on the role.

Mr Green says: “The Chancellor has got an extraordinarily difficult hand to play as he tries to stem the economic damage caused by the pandemic, support jobs and businesses and, crucially, rebuild the public finances.

“Whilst Mr Sunak is being hailed a hero for the continued and unprecedented levels of support, it should also be remembered that he is – in a stealth move – dragging more people firmly into the tax net.

“He is raising taxes under the radar.

“Yes, there is no income tax rise. However, he is freezing personal tax thresholds, meaning as incomes rise and thresholds don’t, he is able to raise money by fiscal drag.”

Earlier this week, the deVere CEO noted: “Those most impacted by this stealth move will be looking at the financial planning options available to them, including international options, in order to grow and protect their wealth.”

Rishi Sunak also confirmed that corporation tax will increase to 25% from 2023, up from the current level of 19%.

Of this tax hike, Mr Green goes on to say: “Lower corporation tax helps job and wealth-creating business to survive and thrive. It also helps attract business to move and invest in the country.

“Instead of increasing taxes, Mr Sunak should have relentlessly focussed on growth and stimulus policies for businesses.  This would have been of greater help to firms, the economy, jobs and, ultimately, the Treasury’s coffers.”

He adds: “Again, this corporation tax hike is likely to serve as a prompt for businesses to consider their overseas financial options.”

The deVere CEO concludes: “The Chancellor had to perform a tough juggling act.  But stealthily dragging more people into the tax net and raising corporation tax might have negative, unintended consequences for the Treasury’s bottom line.”

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