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

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Naira - Investors King
  • 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.”

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

World Bank Commits Over $15 Billion to Support Nigeria’s Economic Reforms

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The World Bank has pledged over $15 billion in technical advisory and financial support to help the country achieve sustainable economic prosperity.

This commitment, announced in a feature article titled “Turning The Corner: Nigeria’s Ongoing Path of Economic Reforms,” underscores the international lender’s confidence in Nigeria’s recent bold reforms aimed at stabilizing and growing its economy.

The World Bank’s support will be channeled into key sectors such as reliable power and clean energy, girls’ education and women’s economic empowerment, climate adaptation and resilience, water and sanitation, and governance reforms.

The bank lauded Nigeria’s government for its courageous steps in implementing much-needed reforms, highlighting the unification of multiple official exchange rates, which has led to a market-determined official rate, and the phasing out of the costly gasoline subsidy.

“These reforms are crucial for Nigeria’s long-term economic health,” the World Bank stated. “The supply of foreign exchange has improved, benefiting businesses and consumers, while the gap between official and parallel market exchange rates has narrowed, enhancing transparency and curbing corrupt practices.”

The removal of the gasoline subsidy, which had cost the country over 8.6 trillion naira (US$22.2 billion) from 2019 to 2022, was particularly noted for its potential to redirect fiscal resources toward more impactful public investments.

The World Bank pointed out that the subsidy primarily benefited wealthier consumers and fostered black market activities, rather than aiding the poor.

The bank’s article emphasized that Nigeria is at a turning point, with macro-fiscal reforms expected to channel more resources into sectors critical for improving citizens’ lives.

The World Bank’s support is designed to sustain these reforms and expand social protection for the poor and vulnerable, aiming to put the economy back on a sustainable growth path.

In addition to this substantial support, the World Bank recently approved a $2.25 billion loan to Nigeria at a one percent interest rate to finance further fiscal reforms.

This includes $1.5 billion for the Nigeria Reforms for Economic Stabilization to Enable Transformation (RESET) Development Policy Financing, and $750 million for the NG Accelerating Resource Mobilization Reforms Programme-for-Results (ARMOR).

“The future can be bright, and Nigeria can rise and serve as an example for the region on how macro-fiscal and governance reforms, along with continued investments in public goods, can accelerate growth and improve the lives of its citizens,” the World Bank concluded.

With this robust backing from the World Bank, Nigeria is well-positioned to tackle its economic challenges and embark on a path to sustained prosperity and development.

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Economy

Nigeria’s Food Inflation Hits 40.66% Year-on-Year in May 2024

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Nigeria's Inflation Rate - Investors King

Nigeria’s food inflation rate surged to 40.66% on a year-on-year basis in May 2024, a significant increase from 24.82% recorded in May 2023.

The latest figures from the National Bureau of Statistics (NBS) highlight the rising cost of essential food items, exacerbating the economic challenges faced by many Nigerians.

The NBS report attributes the steep rise in food inflation to substantial price increases in several staple items.

Notably, the prices of Semovita, Oatflake, Yam flour, Garri, and Beans saw considerable hikes.

In addition, the cost of Irish Potatoes, Yams, Water Yam, Palm Oil, and Vegetable Oil also climbed significantly. Within the protein category, Stockfish, Mudfish, Crayfish, Beef, Chicken, Pork, and Bush Meat experienced notable price jumps.

The month-on-month food inflation rate in May 2024 was 2.28%, reflecting a slight decrease of 0.22 percentage points from the 2.50% recorded in April 2024.

This month-to-month decline was due to a slower rate of price increases for Palm Oil, Groundnut Oil, Yam, Irish Potatoes, Cassava Tuber, Wine, Bournvita, Milo, and Nescafe.

Despite the minor monthly decrease, the average annual food inflation rate for the twelve months ending May 2024 was 34.06%.

This marks a significant rise of 10.41 percentage points from the average annual rate of 23.65% recorded in May 2023.

The sharp rise in food inflation is raising concerns among economic analysts and policymakers, as it significantly impacts the cost of living for Nigerians.

The rising food prices are straining household budgets and contributing to an overall inflation rate that threatens economic stability.

In response to the inflationary pressures, the Nigerian government and relevant stakeholders are being urged to implement effective measures to stabilize food prices and address the underlying causes of inflation.

Efforts to boost agricultural productivity, improve supply chains, and tackle market inefficiencies are seen as critical to mitigating the inflationary trend.

The NBS report underscores the urgent need for comprehensive strategies to manage inflation and ensure food security for the population.

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Economy

Nigeria’s Inflation Rate Climbs to 33.95% in May, NBS Reports

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The National Bureau of Statistics (NBS) has revealed that Nigeria’s headline inflation rate rose to 33.95% in May 2024, a slight increase from the 33.69% recorded in April.

This 0.26 percentage point rise underscores the ongoing economic challenges the country faces as it continues to grapple with rising prices and economic instability.

The report highlights that on a year-on-year basis, the headline inflation rate increased by 11.54 percentage points compared to May 2023, when the rate was 22.41%. This significant annual increase indicates a persistent upward trend in the cost of living for Nigerians over the past year.

However, the month-on-month analysis presents a mixed picture. The headline inflation rate for May 2024 was 2.14%, slightly lower than the 2.29% recorded in April 2024. This 0.15 percentage point decrease suggests a marginal slowdown in the rate at which prices are rising month by month.

Urban vs. Rural Inflation Rates

The NBS report also provides detailed insights into urban and rural inflation dynamics. In urban areas, the inflation rate in May 2024 stood at 36.34% on a year-on-year basis, a substantial 12.61 percentage points higher than the 23.74% recorded in May 2023.

On a month-on-month basis, urban inflation was 2.35%, down by 0.32 percentage points from April 2024’s rate of 2.67%.

Conversely, the rural inflation rate for May 2024 was 31.82% year-on-year, which is 10.63 percentage points higher than the 21.19% recorded in May 2023.

Month-on-month, rural inflation slightly increased to 1.94% from 1.92% in April 2024, indicating a steady rise in prices in rural regions.

Implications and Responses

The continuous rise in inflation, particularly in urban areas, poses significant challenges for the Nigerian economy.

The increase in prices for essential goods and services such as food, transportation, and housing is putting immense pressure on household budgets and the overall standard of living.

Economic analysts suggest that the persistent inflationary pressures are driven by several factors, including supply chain disruptions, increased production costs, and fluctuating exchange rates. The impact of these factors is felt more acutely in urban areas, where the cost of living is inherently higher.

In response to these inflationary trends, policymakers are under pressure to implement measures that can stabilize prices and ease the financial burden on citizens.

Strategies such as tightening monetary policy, increasing food production, and improving supply chain efficiency are being considered to curb the rising inflation.

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