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Nigeria’s Debt Profile Rises to N38 Trillion in September 2021

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U.S Dollar - Investors King

No end in sight for Nigeria’s rising debt profile despite the country’s vast natural resources and human capital. A recent report from the country’s Debt Management Office (DMO) revealed that Nigeria’s total debt rose by N2.5 trillion or 7.2 percent from N35.5 trillion in June 2021 to N38 trillion at the end of September 2021.

On a yearly basis, total public debt grew by 17.9 percent or N5.8 trillion and it is equivalent to 24.9 percent of 2020 nominal GDP. This is within the DMO’s target of 40 percent of GDP for the period 2020 – 2023 and domestic to external debt ratio of 70:30.

In the first nine months of 2021, Nigeria spent N2.5 trillion on debt servicing payments, N1.7 trillion was spent on servicing domestic debts and N755 billion spent on external debt servicing.

As at end-September, total domestic debt was N22.4 trillion. This constitutes 59.0 percent of total public debt. On a quarterly basis, the FGN domestic debt increased by 3.1 percent from N17.6 trillion at end-Q2 to N18.2 trillion at end-Q3 ’21. This was largely due to increased issuances of FGN bond and Nigerian treasury bills (NTBs) over the three months.

In terms of composition, FGN bonds and NTBs make up 93 percent of total domestic debt while FGN sukuk, treasury bond, savings bond, green bond and promissory notes make up the remaining 7 percent.

The share of states and the FCT’s domestic debt increased by 1.9 percent from N4.1 trillion at end of June to N4.2 trillion at end-September, with Lagos (N532 billion), Akwa Ibom (N234 billion) and Rivers (N226 billion), as the most indebted states.

We note that with the securitization of the ways and means advances from the Central Bank of Nigeria (CBN), the domestic debt stock is likely to increase. As at end-October ‘21, the stock of CBN’s ways and means advances stood at N12.8trn.

During the period under review, external debt stock stood at USD37.9 billion (N15.6 trillion). On a quarterly basis, the external debt increased by 13.4 percent from USD33.5 billion (N13.7 trillion) at end-Q2. This was largely due to the USD4 billion Eurobonds issued by the FGN in September ’21 as part of the new external borrowing in the 2021 appropriation act.

Multilateral and bilateral loans make up the bulk of the external debt at 59.7 percent, while commercial loans and promissory notes make up the remaining 40.2 percent. We note that the current external debt stock constitutes 40.9% of total public debt and this exceeds the 30 percent target set by the DMO.

Turning to debt service costs, domestic debt servicing increased by 150 percent from N322 billion in Q2 ’21 to N808 billion in Q3 ’21 and external debt servicing increased by 74.2 percent from USD298.9 million (N123.8 billion) in Q2 ’21 to USD520.7 million (N215.7 billion) at end-Q3 ’21.

Although the National assembly has recently approved external borrowings of USD5.8 billion from multilateral and bilateral sources under the FGN’s 2018-2020 external borrowing (rolling) plan. We understand that the FGN is unlikely to issue additional Eurobonds this year.

The 2022 FGN budget has been pegged at N16.4 trillion. The FGN aims to earn N10.13 trillion to fund the budget and the resulting deficit of N6.3 trillion is expected to be financed by new external and domestic borrowings, privatisation proceeds, and multilateral /bilateral loan drawdowns.

As a percentage of total GDP, Nigeria’s public debt burden is relatively low compared to peer emerging market economies. The onus is on the FGN to make productive use of the borrowed funds to improve GDP growth and by extension, ensure economic development.

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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