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Nigeria Spends N5.468tn on Debt Servicing in 39 Months

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  • Nigeria Spends N5.468tn on Debt Servicing in 39 Months

Servicing of domestic and foreign debt gulped a total of N5.468tn between July 2015 and September 2018, an analysis of the data obtained from the Debt Management Office has shown.

While domestic debt servicing gulped a total of N4.77tn within the period, the country spent a total of $2.28bn to service foreign debt.

Statistics made available by the DMO showed that the cost of servicing the nation’s debt has been on the rise as a result of the increasing size of the debt as well as the increasing cost of debt servicing.

In 2015, the country spent a total of N1.02bn on servicing domestic debt. Out of this amount, N528.54bn was spent in the first half of the year while a total of N489.59bn was spent in the second part of the year.

From January to December 2016, the country spent a total of N1.23tn on domestic debt servicing. Again in 2017, the cost of servicing domestic debt rose to N1.48tn.

Although the DMO has yet to release the cost of debt servicing for the fourth quarter of 2018, statistics show that the cost of servicing local debt for the first three quarters stood at N1.57tn.

In the first quarter of 2018, domestic debt servicing gulped N643.63bn. In the second quarter of the year, N297.37bn was spent while a total of N633.58bn was spent in the third quarter of the year.

On the other hand, external debt servicing gulped a total of $2.28bn in the period of 39 months.

The nation spent a total of $331.06m on external debt servicing in 2015. While $159.31m was spent in the first half of the year, a total of $171.75m was spent in the second half of the year.

From January to December 2016, a total of $353.09m was spent on external debt servicing. This went up to $464.05m between January and December 2017.

Again, the cost of debt servicing in the fourth quarter of 2018 is not yet available.

However, available statistics showed that the nation spent a total of $225.25m in the first quarter of 2018 and a total of $202.37m in the second quarter of 2018. In the third quarter of the year, it spent a total of $849.97m on external debt servicing.

This means that for the first three quarters of 2018, the nation spent a total of $1.28bn. This is understandable, given the recent increase in the external debt commitment of the nation as a result of a strategy by the government to borrow more from external sources in order to decrease the ratio of domestic debt.

A number of economic actors including the International Monetary Fund had said that debt servicing had been gulping a large percentage of the country’s revenue.

The IMF had, for instance, in November 2018 said that Nigeria was spending more than 50 per cent of its revenues on servicing of debts.

Speaking at the presentation of the Regional Economic Outlook for Sub-Saharan Africa – Capital Flows and the Future of Work in Abuja on November 8, 2018, the Senior Resident Representative and Mission Chief for Nigeria, African Department, Amine Mati, said Nigeria’s expenditure on debt servicing was high compared to its income.

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 is about 10 per cent; a figure he said was too high and reminiscent of what the region went through in the period following debt relief at the beginning of the 21st century.

Similarly, the Head, Department of Banking and Finance, Nasarawa State University, Keffi, Prof. Uche Uwaleke, said that the huge amount of money being spent on debt servicing was crowding out other areas of public expenditure.

Uwaleke, who is also the president of Capital Market Academics, said that the huge payment on debt servicing was at the expense of investment in critical infrastructure.

He said, “The implication is that the huge debt service is at the expense of investment in critical infrastructure. So, the opportunity cost is very high for the country. The fact that it is crowding out public spending on competing development needs is a great source of concern.

“It also proves the fact that the real debt burden for Nigeria is measured not by the debt to GDP ratio which is relatively low at about 20 per cent but by the debt service to revenue which is over 60 per cent.

“I think the government recognises this revenue challenge, which explains why it is now putting emphasis on ramping up revenue especially from non-oil sources.”

It is in recognition of the huge resources being expended on debt servicing that the Federal Government plans to borrow more from foreign sources in 2019 in order to rebalance the ratio between foreign and domestic debt.

In its Strategic Debt Management Plan 2018 – 2022, the DMO said it planned to attain 40 per cent on foreign debt component of public debt by December 2019.

According to DMO, the move towards contracting more foreign loans is to take advantage of cheaper lending rates abroad and a bid to free the local debt market to enable the private sector to access more funds.

The DMO said, “Following the expiration of the Third Strategic Plan (2013 – 2017), and in recognition of the evolving roles of the DMO, and the need to align public debt management activities with government’s economic policy thrusts, as encapsulated in the Economic Recovery and Growth Plan, amongst others, the need to develop a new Strategic Plan, therefore, became imperative.

“The building blocks for the Fourth Strategic Plan are: a. Changing investor needs and higher investor expectations from the DMO on products and services; b. Government’s prioritisation of the development of infrastructure which requires new and more creative ways of financing; c. The active and supportive role expected of the DMO under the ERGP, two of whose pillars are reducing the infrastructure gap and private sector-led growth.”

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

Electricity Consumers Get 611,231 Meters Under MAP Scheme

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Electricity Consumers Get 611,231 Meters Under MAP Scheme

A total of 611,231 meters have been deployed as at January 31, 2021 under the Meter Asset Provider initiative since its full operation despite the COVID-19 pandemic and other extraneous factors, the Nigerian Electricity Regulatory Commission has said.

NERC disclosed this in a consultation paper on the review of the MAP Regulations.

The proposed review of the MAP scheme is coming nearly four months after the Federal Government launched a new initiative called National Mass Metering Programme aimed at distributing six million meters to consumers free of charge.

“The existence of a huge metering gap and the need to ensure successful implementation of the MYTO 2020 Service-Based Tariff resulted in the approval of the NMMP, a policy of the Federal Government anchored on the provision of long-term low interest financing to the Discos,” NERC said.

The commission had in March 2018 approved the MAP Regulations with the aim of fast-tracking the closure of the metering gap in the sector through the engagement of third-party investors (called meter asset providers) for the financing, procurement, supply, installation and maintenance of meters.

It set a target of providing meters to all customers within three years, and directed the Discos and the approved MAPs to commence the rollout of meters not later than May 1, 2019.

But in February 2020, NERC said several constraints, including changes in fiscal policy and the limited availability of long-term funding, had led to limited success in meter rollout.

NERC, in the consultation paper, highlighted three proposed options for metering implementation going forward.

The first option is to allow the implementation of both the NMMP and MAP metering frameworks to run concurrently; the second is to continue with the current MAP framework with meters procured under the NMMP supplied only through MAPs (by being off-takers from the local manufacturers/assemblers).

The third option is to wind down the MAP framework and allow the Discos to procure meters directly from local manufacturers/assemblers (or as procured by the World Bank), and enter into new contracts for the installation and maintenance of such meters.

“Customers who choose not to wait to receive meters based on the deployment schedule of the NMMP shall continue to have the option of making upfront payments for meters which will be installed within a maximum period of 10 working days,” NERC said.

The regulator said such customers would be refunded by the Discos through energy credits, adding that there would be no option for meter acquisition through the payment of a monthly meter service charge.

“Where meters have already been deployed under the meter service charge option, Discos shall make one-off repayment to affected customers and associated MAPs. Such meters shall be recognised in the rate base of the Discos,” it added.

NERC urged stakeholders to provide comments, objections, and representations on the proposed amendments within 21 days of the publication of the consultation paper.

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Economy

Nigeria’s Economy Moving in Right Direction but Slow – Amina Mohammed

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Nigeria’s Economy Moving in Right Direction but Slow – Amina Mohammed

Nigeria is moving in the right direction economically but its movement is not fast, the United Nations stated on Thursday.

Deputy Secretary-General of the United Nations, Amina Mohammed, said this during a meeting at the headquarters of the Federal Ministry of Industry, Trade and Investment in Abuja.

She said the challenges in Nigeria were huge, its population large but described the country’s economy as great with lots of opportunities.

The UN scribe stated that after traveling by train and through various roads in the Northern parts of Nigeria, she discovered that the roads were motorable, although there were ongoing repairs on some of them.

Mohammed said, “This is a country that is diverse in nature, ethnicity, religious backgrounds and opportunities. But these are its strengths, not weaknesses.

“And I think the narrative for Nigeria has to change to one that is very much the reality.”

Speaking on her trips across parts of Nigeria, she said, “What I saw along the way is really a country that is growing, that is moving in the right direction economically. Is it fast enough? No. Is it in the right direction? Yes it is.

“And the challenges still remain with security, our social cohesion and social contract between government and the people. But I know that people are working on these issues.”

She said the UN recognised the reforms in Nigeria and other nations, adding that the common global agenda was the Sustainable Development Goals.

Mohammad commended Nigeria’s quick response to the COVID-19 pandemic, as she expressed hope that the arrival of vaccines would be the beginning of the end of COVID-19.

On his part, the Minister of Industry, Trade and Investment, Adeniyi Adebayo, told his guest that the Federal Government was working hard to make Nigeria the entrepreneurial hub of Africa.

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Economy

N10.7tn Spent on Fuel Subsidy in 10 Years – MOMAN

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N10.7tn Spent on Fuel Subsidy in 10 Years – MOMAN

Nigeria spent a total of N10.7tn on fuel subsidy in the last 10 years, the Chairman, Major Oil Marketers Association of Nigeria, Mr Adetunji Oyebanji, has said.

Oyebanji, who was the guest speaker at the 18th Aret Adams Lecture on Thursday, said N750bn was spent on subsidy in 2019.

He highlighted the need for a transition to a market-driven environment through policy-backed legislative and commercial frameworks, enabling the sustainability of the downstream petroleum sector.

“Total deregulation is more than just the removal of price subsidies; it is aimed at improving business operations, increasing the investments in the oil and gas sector value chain, resulting in the growth in the nation’s downstream petroleum sector as a whole,” he said.

The managing director of 11 Plc (formerly Mobil Oil Nigeria Plc) said steps had been taken, “but larger and faster leaps are now required.”

According to him, deregulation requires the creation of a competitive market environment, and will guarantee the supply of products at commercial and market prices.

“It requires unrestricted and profitable investments in infrastructure, earning reasonable returns to investors. It requires a strong regulator to enable transparency and fair competition among players, and not to regulate prices,” Oyebanji said.

He noted that MOMAN had recently called for a national debate by stakeholders to share pragmatic and realistic initiatives to ease the impact of the subsidy removal on society – especially on the most vulnerable.

He said, “A shift from crude oil production to crude oil full value realisation through deliberate investment in domestic refining and refined products distribution, creates the opportunity to transform the dynamics of the downstream sector from one of ‘net importer’ to one of ‘net exporter’, spurring the growth of the Nigerian economy.

“Effective reforms and regulations are key drivers for the growth within the refining sector. Non-functional refineries cost Nigeria over $13bn in 2019. If the NNPC refineries were operating at optimal capacity, Nigeria would have imported only 40 per cent of what it consumed in 2019.”

Full deregulation of the downstream sector remains the most glaring boost to potential investors in this space, according to Oyebanji.

He said, “As crude oil prices will fluctuate depending on the prevailing exchange rates, it will be astute to trade in naira to avoid inevitable price swings.

“There needs to be a balance between ensuring the sustainable growth of the crude oil value chain (upstream through downstream) and providing value for the Nigerian consumer and the Nigerian economy.”

He said the philosophy should be for the government to put the legislative and commercial framework in place and let the market develop by itself.

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