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Nigeria’s Rising Debt is Costly and Vulnerable Says World Bank

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The World Bank has said the Central Bank of Nigeria’s large and growing financing has made Nigeria’s rising debt costly and vulnerable.

The Washington-based global financial institution disclosed this in its November edition of Nigeria Development Update.

According to World Bank, the country’s debt is at risk of becoming unsustainable in the event of macro-fiscal shocks.

It said, “Nigeria’s debt remains sustainable, albeit vulnerable and costly, especially due to large and growing financing from the Central Bank of Nigeria.

“While currently the debt stock of 27 percent of the Gross Domestic Product is considered sustainable, any macro-fiscal shock can push debt to unsustainable levels.

“However, the debt to the GDP in Nigeria is rising quickly, and the total stock of debt in absolute value has almost doubled between 2016 and 2020, and without a policy change is expected to reach 40 percent of the GDP by 2025.”

World Bank also expressed concerns over Nigeria’s rising cost of debt servicing, which according to the institution, has disrupted public investments in key sectors.

“The cost of debt servicing is also a concern as it is potentially crowding out public investment and critical service delivery spending. Interest costs have been above two percent of the GDP since 2018, reaching 2.4 percent of the GDP in 2019 and then falling to 2.2 percent of the GDP in 2020.

“Cost of debt is high as Federal Government also resorts to overdraft (Ways and Means financing) from the CBN to meet in-year cash shortfalls. At end of 2020, the stock of the CBN Ways and Means financing was estimated at N13.1tn or 8.5 percent of the GDP,” it stated.

Meanwhile, the Federal Government had estimated that Nigeria’s total public debt will rise from the present N38 trillion to N50.22 trillion by the end of 2023, with domestic debt projected at N28.75 trillion and foreign debt at N21.47 trillion. Suggesting that President Muhammadu Buhari-led’s administration is planning to borrow an estimated N12 trillion in two years.

Economists have condemned President Buhari’s incessant borrowing habit and warned that it could hurt the country’s development and productivity down the line. In the second quarter of 2021, the administration spent N445 billion on debt servicing, according to Debt Management Office. That is the amount that could have been used to improve factors of production and grow the economy.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Cost of Servicing Nigeria’s Debt to N10.43 Trillion by 2025

Nigeria’s debt servicing was estimated to hit N10.43 trillion by 2025

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Nigeria’s debt servicing was estimated to hit N10.43 trillion by 2025, according to the 2023-2035 Medium Term Expenditure Framework & Fiscal Strategy Paper.

In 2021, Nigeria budgeted N3.32 trillion for debt servicing but spent N4.2 trillion in the first 11 months of the year, representing an increase of 37.9%, or N1.15 trillion.

While between January and April 2022, the country has already spent N1.94 trillion on debt servicing, against a retained revenue of N1.63 trillion. Meaning, Africa’s largest economy is presently spending more than its generating on debt.

Rising interest payments on debts might wipe out Nigeria’s entire earnings, said Ari Aisen, an IMF representative in Nigeria.

Aisen said, “The biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue, and as you see us in terms of the baseline from the federal government of Nigeria, the revenue of almost 100 per cent is projected by 2026 to be taken by debt service.

“So, the fiscal space or the amount of revenues that will be needed and this, without considering any shock, is that most of the revenues of the Federal Government are now, in fact, 89 per cent and it will continue if nothing is done to be taken by debt service.”

Similarly, Patience Oniha, the Director General of the Debt Management Office, said the country’s high debt servicing cost is affecting investment in the real economy.

According to the DMO DG, “High debt levels lead to heavy debt service which reduces resources available for investment in infrastructure and key sectors of the economy.”

Nigeria’s Minister of Finance Ahmed Zainab said the country is presently struggling with the rising cost of servicing debt despite the increase in revenue.

She said, “Already, we are struggling with being able to service debt because even though revenue is increasing, the expenditure has been increasing at a much higher rate, so it is a very difficult situation.”

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Economy

U.S Senate Passes $749 Billion Inflation Reduction Act

The United States Senate has voted in support of President Joe Biden’s $749 billion Inflation Reduction Act expected to rein in America’s over 40-year high inflation rate, support American families by reducing everyday energy costs and compel the richest corporations in America to pay their taxes.

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The United States Senate has voted in support of President Joe Biden’s $749 billion Inflation Reduction Act expected to rein in America’s over 40-year high inflation rate, support American families by reducing everyday energy costs and compel the richest corporations in America to pay their taxes.

Explaining the significance of the bill, the President said it will reduce the federal deficit by over $300 billion and cap seniors’ out-of-pocket spending on prescription drugs at $2000 a year, no matter what their drug bills would otherwise be, seniors citizens will not pay more than $2000.

Also, 13 million Americans presently under the Affordable Care Act, will save $800 on their health insurance premium a year.

“This bill tackles inflation by lowering the deficit and lowering costs for regular families,” President Biden declared.

Americans earning below $400,000 a year will not pay any new taxes while the wealthiest corporations will now be paying 15% on income, estimated at $40 billion in 2020. The bill will ensure America invests $369 billion in clean energy and addresses the climate crisis.

“It also gives consumers a tax credit to buy any electric vehicle or fuel cell vehicle, new or used, and a tax credit for up to $7,500 if those vehicles were made in America.

“This investment in environmental justice is real. It also provides tax credits that will create thousands of good-paying jobs — manufacturing jobs on clean energy construction projects, solar projects, wind projects, clean hydrogen projects, carbon capture projects, and more — by giving tax credits for those who build these projects here in America,” President Biden stated.

Speaking on the milestone, President Joe Biden said “I ran for President promising to make government work for working families again, and that is what this bill does — period.”

President Biden would be expected to sign the Act into law once the House of Representatives passed it.

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Economy

NRC Suspends Train Service on Lagos-Kano, Ajaokuta Routes

The Nigerian Railway Corporation (NRC) has suspended train services on the Lagos- Kano and Ajaokuta routes.

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Following the recent terrorist attacks in various parts of the country, the Nigerian Railway Corporation (NRC) has suspended train services on the Lagos- Kano and Ajaokuta routes.

Also, train services were reported to have been suspended at Ajaokuta station along the Warri-Itakpe route by the NRC after the attack on some passengers by gunmen on Monday.

According to a statement from the Ministry of Transportation and the NRC, the train services would be suspended until the security of those routes is assured.

The Managing Director for NRC, Fidet Okhiria, who confirmed the news about the suspension, noted that the corporation did not stop train services on the Warri-Itakpe route.

Okhiria said: “We have not stopped (services), rather what we said was that we are not going to be stopping at the Ajaokuta station.

“This is because on Monday, while passengers were leaving the station with their private cars and buses, they had people shooting at them. So we said we will not stop there again for passengers.

“The train is still running, but for now we will not be stopping at Ajaokuta because they have some concerns there.”

Investors King recalls that the NRC had, on 29th of March, suspended train service operations on the Abuja -Kaduna axis as a result of a terrorist attack that left about 8 dead, injured many and led to the kidnap of about 200 persons.

Meanwhile, the Federal Government has hinted that as soon as all security measures are put in place, train services for the Abuja -Kaduna axis would resume.

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