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Annual Domestic Debt Servicing Goes up by N247bn

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  • Annual Domestic Debt Servicing Goes up by N247bn

The cost of servicing domestic debt has been on the increase in the past five years, as the Federal Government spent N1.48tn on the subject in 2017, Everest Amaefule reports

The Federal Government spent N247.46bn more in servicing the domestic component of its public debt in 2017 than it spent in 2016, investigation has shown.

According to statistics obtained from the Debt Management Office, the Federal Government spent a total of N1.23tn to service its domestic debt in 2016. However, by 2017, the cost of servicing the debt had gone up to N1.48tn.

This means that the cost of servicing the domestic component of the Federal Government’s debt commitment rose by N247bn within the one year period. This reflected an increase of 20.1 per cent in the cost of domestic debt service.

The DMO confirmed this increase in a report on Domestic Debt Servicing.

It said, “The FGN’s Domestic Debt service as at December 31, 2017, was N1, 476.22bn, compared to N1, 228.76bn in the corresponding period of 2016, representing an increase of N247.46bn or 20.14 per cent.

“This cost comprised principal repayment of N25bn and interest payment of N1, 451.22bn.

“By instrument-type, the debt service for FGN bonds was 66.57 per cent of the total debt service payment, while payments in respect of the FGN Savings Bond, Nigerian Treasury Bills, and Treasury Bonds were 0.03, 30.15 and 3.25 per cent, respectively.

“Further analysis showed that the FGN’s domestic debt service payments rose steadily from N794.10bn in 2013 to N1, 476.22bn in 2017, as a result of the growth in domestic debt stock with relatively higher interest rates.”

Between 2013 and 2014, the cost of domestic debt servicing rose from N794.10bn to N865.81bn. This meant that the cost of servicing rose by 71.71bn or 9.03 per cent.

By 2015, the cost of domestic debt servicing hit the trillion naira mark, rising from 1,018.13bn. This showed that cost rose by 152.32bn, reflecting 17.59 per cent increase. By 2016, the cost went up by 210.63bn, reflecting 20.69 per cent.

Thus, between 2013 and 2017, the cost of serving the Federal Government’s domestic debt went up by N682.12bn. This showed an increase of 85.89 per cent within a period of four years.

The increasing cost of debt servicing (domestic debt in particular) has been a major source of concern for many stakeholders and experts. The trend has also been similar for a number of Sub-Saharan African countries, especially those that depend on commodities for foreign exchange earnings.

The International Monetary Fund, for instance, in November, pointed out that the precarious situation of the country when it said that the nation was spending a high proportion of its revenues on debt servicing.

The Breton Woods financial institution said that the nation spent more than 50 per cent of its revenues on servicing on debts, a situation that did not give room for other necessary expenses.

Speaking at the presentation of the Regional Economic Outlook for Sub-Saharan Africa – Capital Flows and the Future of Work, Senior Resident Representative and Mission Chief for Nigeria, African Department, Amine Mati, said Nigeria was spending more than 50 per cent of revenues on debt servicing.

Mati said that although Nigeria’s debt to Gross Domestic Product remained low at between 20 and 25 per cent, the country spent a high proportion of its revenue on debt servicing as a result of low revenue generation.

He added that the debt servicing to revenue ratio was more than 50 per cent while for sub-Saharan Africa, the rate was about 10 per cent; a figure he said was too high and reminiscent of what the region went through in the period of following debt relief at the beginning of the 21st century.

Mati said, “Security issues are exacting a significant human toll in a number of countries. Debt to GDP ratio is increasing in the past five years. Public debt is diverting more resources towards debt servicing.

“The interest rate has gone up to where they used to be around the year 2000 before debt relief. Adjustment has relied on spending compression rather than revenues mobilisation. Meeting the Sustainable Development Goals will require stronger growth and more financing.”

For DMO, however, rising debt and rising cost of debt payment were necessities occasioned by precarious economic situation as typified by the recent recession that the country went through.

The Director- General of the Debt Management Office, Patience Oniha, said that it was important for the government to borrow especially given the nation’s low revenue generating capacity.

Oniha said, “We are borrowing to be able to increase Forex availability. Government needed to borrow in order to spend the country out of recession.”

Justifying this viewpoint, Oniha said that in 2016, the Federal Government borrowed N2.5tn which was approved by the National Assembly while it proposed to borrow N1.64tn in the current financial year.

In 2019, she added, the proposed debt of N1.5tn had gone further down. She added that the government had taken steps to diversify the economy and increase tax collection which, she said, was lower than in most countries of the Economic Community of West African States.

According to DMO boss, the government has also taken steps to reduce the incidence of high cost of debt servicing. One of such steps is the attempt to rebalance the nation’s sources of loans.

By this, the government has been making moves to borrow more from foreign sources as it plans to raise foreign debt component to 40 per cent of the public debt while reducing the domestic debt component to 60 per cent. The rationale is that domestic debts come with higher interest rates.

The second strategy is similar to the first one – borrow more money foreign sources and use it liquidate some domestic debt. This strategy will also grow the foreign debt component and reduce the local component.

How these strategy works in the long run remains to be seen as experts point out that there are also risks associated with increasing foreign debt component of public debt. One of such risks is the foreign exchange risk.

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.

Banking Sector

COVID-19: CBN Extends Loan Repayment by Another One Year

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Central Bank Extends One-Year Moratorium by 12 Months

The Central Bank of Nigeria (CBN) has extended the repayment of its discounted interest rate on intervention facility by another one-year following the expiration of the first 12 months moratorium approved on March 1, 2020.

The apex bank stated in a circular titled ‘Re: Regulatory forbearance for the restructuring of credit facilities of other financial institutions impacted by COVID-19’ and released on Wednesday to all financial institutions.

In the circular signed by Kelvin Amugo, the Director, Financial Policy and Regulation Department, CBN, the apex bank said the role-over of the moratorium on the facilities would be considered on a case by case basis.

The circular read, “The Central Bank of Nigeria reduced the interest rates on the CBN intervention facilities from nine per cent to five per cent per annum for one year effective March 1, 2020, as part of measures to mitigate the negative impact of COVID-19 pandemic on the Nigerian economy.

“Credit facilities, availed through participating banks and OFIs, were also granted a one-year moratorium on all principal payments with effect from March 1, 2020.

“Following the expiration of the above timelines, the CBN hereby approves as follows:

“The extension by another 12 months to February 28, 2022 of the discounted interest rate for the CBN intervention facilities.

“The role-over of the moratorium on the above facilities shall be considered on a case by case basis.”

It would be recalled that the apex bank reduced the interest rate on its intervention facility from nine percent to five percent and approved a 12-month moratorium in March 2020 to ease the negative impact of COVID-19 on businesses.

To further deepen economic recovery and stimulate growth, the apex bank has extended the one year-moratorium until February 28, 2022.

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Finance

MTN Nigeria Generates N1.35 Trillion in Revenue in 2020

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MTN Nigeria Grows Revenue by 15.1 Percent from N1.169 Trillion in 2019 to N1.35 Trillion in 2020

Despite the COVID-19 pandemic and challenging business environment, MTN Nigeria realised N1.346 trillion in revenue in the financial year ended December 31, 2020.

The leading telecommunications giant grew revenue by 15.1 percent from N1.169 trillion posted in the same period of 2019.

Operating profit surprisingly jumped by 8.5 percent from N393.225 billion in 2019 to N426.713 billion in 2020.

This, the telecom giant attributed to the surge in finance costs due to increased borrowings from N413 billion in 2019 to N521 billion in 2020.

MTN Nigeria further stated that the increase in finance costs was the reason for the decline in growth of profit before tax to 2.6 percent.

MTN Nigeria grew profit before tax by 2.6 percent to N298.874 billion, up from N291.277 billion filed in the corresponding period of 2019.

The company posted N205.214 billion profit for the year, a 0.9 percent increase from N203.283 billion recorded in the 2019 financial year.

Share capital remained unchanged at N407 million. While Total equity increased by 22.3 percent from N145.857 billion in 2019 to N178.386 billion in 2020.

MTN Nigeria’s market price per share increased by 61.8 percent from N105 to N169.90.

While market capitalisation as at year-end also expanded by 61.8 percent to N3.458 trillion, up from N2.137 trillion.

The number of shares issued and fully paid as at year-end stood at 20.354 million.

MTN Nigeria margins were affected by Naira devaluations and capital expenditure due to the new 4G network coverage roll-out.

Margins were adversely affected by the effect of naira devaluation and expenses associated with new sites’ roll-out to boost 4G network coverage in FY’20.

“On the former, we note that MTNN expanded the scope of its service agreement with IHS Holding Limited and changed the reference rate for converting USD tower expenses to NAFEX (vs CBN’s official rate previously). Thus, over the full-year period, the company’s operating margin contracted by 1.9 ppts YoY to 31.7%,” CardinalStone stated in its latest report.

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Finance

Nestle Nigeria Approves Final Dividend of N35.50k per 50 Kobo Ordinary Share for 2020

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Nestle Nigeria Approves Final Dividend of N35.50k per 50 Kobo Ordinary Share for 2020

Nestle Nigeria, a leading food and beverage company, has declared a final dividend of N35.50k per 50 kobo ordinary share for the year ended December 31, 2020.

The beverage company said N24.50k of the amount declared was from the after-tax profit of 2020 and N5 and N6 were from the after-tax retained earnings of the years ended December 2019 and 2018, respectively.

Nestle Nigeria stated that the amount declared is subject to appropriate withholding tax and approval at the Annual General Meeting of shareholders.

It also noted that payment will be made only to shareholders whose names appear in the Register of Members as at the close of business on 21 May 2021.

Dividends will be paid electronically to shareholders whose names appear on the Register of Members as at 21 May 2021, and who have completed the e-dividend registration and mandated the Registrar to pay their dividends directly into their Bank accounts.

Shareholders who are yet to complete the e-dividend registration are advised to download the Registrar’s E-Dividend Mandate Activation Form, which is also available on their website: www.gtlregistrars.com, complete and submit to the Registrar or their respective Banks.

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