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Infrastructure: FG Needs to Borrow More, Says Expert

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  • Infrastructure: FG Needs to Borrow More, Says Expert

The Federal Government must take more loans if its plan to fund infrastructure is to be realised, according to the Senior Analyst at Agusto & Co, Mr Jimi Ogbobine.

Ogbobine said this on Sunday at a training for financial journalists during the Finance Correspondents Association of Nigeria 2018 annual workshop in Lagos, according to the News Agency of Nigeria.

He stated that the government was expected to deploy about N1.6tn to fund infrastructure this year.

Ogbobine said the bulk of financing for infrastructure would come from borrowing, with a larger share being domestic debts.

He also noted that funding the capital budget would require higher than planned borrowing with adverse implications for interest rates and interest costs for the economy.

He stated, “The Federal Government’s borrowing to fund infrastructure is likely to be between N1.2tn and N1.6tn. The implementation is unlikely to start before the second quarter and revenue is likely to be lower than planned.

“Actual funding from asset restructuring, recoveries and others may be substantially lower than the planned level of N2tn. Therefore, fully funding the capital budget will mean higher than planned borrowing with adverse implications for interest rates and interest costs.”

He added that the obligatory spending of the Federal Government was still more than 100 per cent of revenues, hence, there was no free cash flow for investment in infrastructure.

Ogbobine noted, “Every kobo of infrastructure spending is financed by debt, which constraints the ability to fully fund budgeted amounts. Debt as a percentage of revenue is significantly higher than the median of 200 per cent for countries in Middle East & Africa.

“The Federal Government plans to partly finance the 2018 capital expenditure with proceeds of asset sales.”

Speaking on inflation, he said a hyper inflationary environment was one where prices double at least every three years.

He added, “This means inflation rate of about 25 per cent per annum. In such environments, investors hold savings in low inflation currencies like dollars, pounds sterling and euros. Also, business persons price products, particularly those with a high import content, in these low inflation currencies, usually the dollar.

“In effect, such environments are dual currency environments. Real Gross Domestic Product per capita should grow in 2018, making it easier for businessmen to access forex to fund their operations. Therefore, most businesses should see top line and profit growths, while unemployment rate will fall but the level will remain high.”

The analyst said actual deficit might be lower than the projected deficit largely because of a low implementation of the capital budget.

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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