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CBN Agricultural Loans Haven’t Grown Nigerian Economy, Only 24% Repaid– IMF

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The International Monetary Fund (IMF) says agricultural loans offered have not significantly improved production and the Nigerian economy.

This is as the IMF revealed that only 24 percent of loans distributed under the Anchor Borrowers’ Programme of the Central Bank of Nigeria (CBN) have been repaid as at January 12, 2023.

The Anchor Borrowers’ Programme (ABP), formed in 2016 is aimed at assisting farmers to improve the quality of their agricultural inputs for massive production to reach international standards and boost the economy, Investors King had learnt.

In a Selected Issues paper as a document for the periodic consultation with Nigeria, IMF pointed out that CBN has not been able to identify the right recipients of the loans which has affected the result and hindered production growth.

Investors King reports that the Anchor Borrowers Programme, from inception, had prepared N40bn loans to support farmers with a single-digit interest rate.

The IMF hinted that over 1 trillion naira has been disbursed as loans through mid-2022 for the ABP scheme even as the CBN increased its share of agricultural financing.

According to the IMF, the repayment of the loans disbursed is too low despite the fact that the CBN allows the beneficiaries to pay in kind or cash.

The international body described the loan repayment structure as too weak which has led to the unimpressive outcome of the ABP scheme.

The document reads partly, “For the Anchor Borrowing Programme, repayment is also low at 24 per cent, especially since repayment can be made in kind, thereby limiting the tenor of the loans to one year.

“Part of the problem is that the incentive structure for repayment is weak, the recipient loans are not always well targeted and occasionally the funding is used for other purchases (e.g., new agricultural input trading companies to elicit trading rents).”

The All Farmers Association of Nigeria (AFAN), December last year stated that a larger number of the loan recipients are not Nigerian Farmers which has made them difficult to trace for repayment as they are not captured in their database. Though, the CBN disagreed with the claim.

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FG’s Debt Financing Soars, Hits $854.36m in May Alone

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Naira Exchange Rates - Investors King

The Federal Government’s expenditure on debt financing rose to $854.36 million in May alone, according to data released by the Central Bank of Nigeria (CBN).

This figure marks the highest single-month spending on debt servicing recorded in the past year, raising alarms about the sustainability of the country’s borrowing practices.

The data from the CBN’s International Payments Report revealed a sharp escalation in debt servicing expenditure, with May’s figure representing a significant surge compared to previous months.

The $854.36 million spent in May is nearly four times higher than the amount disbursed for debt servicing in April and reflects a 286.49% increase from the same period in 2023.

The exponential rise in debt financing expenditure comes despite the Nigerian government’s claims of shifting its borrowing focus towards the domestic market.

Such a substantial outlay on debt servicing raises questions about the government’s ability to manage its fiscal responsibilities while maintaining economic stability and growth.

Analysts have voiced concerns over Nigeria’s increasing reliance on external borrowing, which poses risks to the country’s long-term financial health.

Fitch Ratings previously projected Nigeria’s external debt servicing to escalate to $5.2 billion next year, highlighting the urgency for prudent financial management and strategic debt reduction measures.

The Federal Government’s mounting debt burden has prompted calls for transparency and accountability in fiscal policies.

Stakeholders emphasize the need for effective debt management strategies to mitigate the adverse effects of escalating debt levels on the economy.

Despite assurances from government officials regarding plans to raise additional funds from concessional lenders and international financial institutions, including the World Bank, concerns persist over the sustainability of Nigeria’s borrowing trajectory.

The recent announcement by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, regarding an impending $2.25 billion World Bank package underscores the government’s reliance on external financing to meet its financial obligations.

As Nigeria grapples with the economic challenges exacerbated by the COVID-19 pandemic and fluctuating global oil prices, achieving fiscal stability remains paramount.

Efforts to diversify revenue sources, enhance transparency in public expenditure, and implement prudent debt management practices are crucial for safeguarding Nigeria’s financial future and fostering sustainable economic growth.

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Nigerian Banks Adjust Lending Rates Amid Central Bank’s MPR Hike

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Central Bank of Nigeria (CBN)

Commercial and merchant banks across the country have adjusted their lending rates in response to the Central Bank of Nigeria’s (CBN) recent decision to raise the Monetary Policy Rate (MPR).

This move comes as a direct reaction to the CBN’s efforts to curb inflation and stabilize the economy.

Effective May 2024, the MPR saw a substantial increase of 750 basis points, bringing it to 26.25 percent, up from 18.75 percent in July 2023.

This significant hike has prompted a wave of rate adjustments across 25 out of 31 lending financial institutions, which now offer maximum borrowing interest rates above the MPR for various sectors of the economy.

Conversely, six lenders provide loans at rates below the benchmark interest rate.

Access Bank, for instance, has set its maximum lending rate at 28.50 percent for customers in agriculture, forestry, and manufacturing, while prime customers can borrow at 22 percent.

Citi Bank offers similar maximum interest rates of 28 percent for the same sectors, with a 21.50 percent rate for prime borrowers.

Coronation Merchant Bank presents one of the highest rates, with loans available at 30 percent for both prime and maximum customers, though it offers a lower rate of 9 percent to prime customers in mining, quarrying, and manufacturing.

Ecobank has adjusted its maximum lending rate to 30 percent, while its prime rate is 26.75 percent.

The highest lending rates are observed at Stanbic IBTC Bank, where maximum rates reach up to 50 percent, though prime rates vary between 8 percent and 27 percent.

Meanwhile, FCMB offers loans at a maximum rate of 40 percent and a prime rate of 22.50 percent, reflecting the wide range of adjustments made by different financial institutions.

FBN Quest Merchant Bank and Unity Bank provide more moderate rates for specific sectors. FBN Quest offers a 9 percent rate to prime customers in agriculture and forestry, with a maximum rate of 30 percent in the manufacturing sector.

Unity Bank, on the other hand, has lending rates ranging from 9 percent to 30 percent, with a maximum rate of 38 percent.

The adjustments in lending rates are not limited to these institutions. Fidelity Bank, for example, now offers loans at 27 percent for its prime customers, with a maximum rate of 30 percent, while First Bank of Nigeria has set its lending rate at 25 percent for prime customers, and 32 percent at the maximum.

However, prime customers in the manufacturing sector can secure loans at a lower rate of 15 percent.

These rate changes reflect the broader strategy of Nigerian banks to align with the CBN’s monetary policy, ensuring they manage their lending portfolios effectively amid economic fluctuations.

The adjustment in lending rates is expected to have widespread implications for borrowers across various sectors, influencing borrowing costs and potentially impacting economic activities.

As the financial services sector adapts to the new MPR, stakeholders and analysts will closely monitor the effects of these changes on the economy.

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Federal Government Spends $1.12 Billion on Foreign Debt Servicing in Q1 2024

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The Federal Government has disclosed that it pays $1.12 billion to service foreign debts in the first quarter of 2024 alone.

This amount shows the escalating burden of external debt on the nation’s fiscal health.

Data gleaned from the international payment segment of the Central Bank of Nigeria website reveals a steady upward trajectory in debt service payments, both over the past few years and within the first quarter of 2024.

When this is compared to the same period in 2023, debt servicing rose by 39.7 percent in Q1, 2024.

The breakdown of the debt service payments paints a picture of fluctuating yet consistently high expenditure.

January 2024 commenced with an imposing debt servicing obligation of $560.52 million, a stark contrast to the $112.35 million recorded in January 2023.

While February 2024 witnessed a moderation in debt servicing payments to $283.22 million and March 2024 saw a further decrease to $276.17 million.

Alarmingly, approximately 70 percent of Nigeria’s dollar payments were allocated to service external debts during the first quarter of 2024.

Out of the total outflows amounting to $1.61 billion, a substantial $1.12 billion was directed towards debt servicing, significantly surpassing the corresponding figure of 49 percent in Q1 2023.

The depletion of foreign exchange reserves, which experienced a recent one-month dip streak has been attributed primarily to debt repayments and other financial obligations rather than efforts to defend the naira, according to CBN Governor Yemi Cardoso.

The World Bank has expressed profound concern over the escalating debt service burdens facing developing countries globally, emphasizing the urgent need for coordinated action to avert a widespread financial crisis.

With record-level debt and soaring interest rates, many developing nations, including Nigeria, face an increasingly precarious economic path, fraught with challenges regarding resource allocation and financial stability.

The Debt Management Office (DMO) has previously disclosed that Nigeria incurred a debt service of $3.5 billion for its external loans in 2023, marking a 55 percent increase from the previous year.

This worrisome trend underscores the pressing need for robust fiscal management and prudent debt repayment strategies to safeguard Nigeria’s financial stability and foster sustainable economic growth.

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