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Legacy Debts Account for $3bn of $5.5bn Foreign Loans –Adeosun

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  • Legacy Debts Account for $3bn of $5.5bn Foreign Loans –Adeosun

The Minister of Finance, Mrs. Kemi Adeosun, on Wednesday, stated that the Federal Government would apply the sum of $3bn in refinancing the legacy debts of the immediate past administration.

The outlay is part of the $5.5bn foreign loan being sourced from the international financial markets, according to the minister.

Adeosun, who appeared on a television programme in Abuja, according to a statement made available by her Special Adviser on Media, Mr. Oluyinka Akintunde, said the proposed $5.5bn loan was made up of refinancing of heritage debts to the tune of $3bn and new borrowing of $2.5bn for the 2017 budget.

The minister said the 2017 budget was facing liquidity problem, which explained in part the reasons that the Federal Government was seeking to borrow $5.5bn from the international financial market.

She said that the other reason was to get $3bn to refinance part of the domestic debt incurred by the government of President Goodluck Jonathan.

The minister stated that under Jonathan, the country’s debt rose from N7.9tn in June 2013 to N12.1tn in June 2015 despite the fact that “only 10 per cent of the budget was allocated to capital expenditure when oil price exceeded $120 per barrel.”

This means that the country’s debt rose by N4.2tn within the last two years that preceded the ascendance of President Muhammadu Buhari to the Presidency on May 29, 2015.

Adeosun stated, “Let me explain the $5.5bn borrowing because there have been some misrepresentations in the media in the last few weeks. The first component of $2.5bn represents new external borrowing provided for in the 2017 Appropriation Act to part finance the deficit in that budget.

“The borrowing will enable the country to bridge the gap in the 2017 budget currently facing liquidity problem to finance some capital projects.

“For the second component, we are refinancing existing domestic debt with the $3bn external borrowing. This is purely a portfolio restructuring activity that will not result in any increase in the public debt.”

She added, “Under this dispensation, we are not borrowing to pay salaries. If all we do is to pay salaries, we cannot grow the economy. This administration is also assiduously working to return Nigeria to a stable economic footing. In the light of this, the government adopted an expansionary fiscal policy with an enlarged budget that will be funded in the short term by borrowing.

“Nigeria’s debt to Gross Domestic Product currently stands at 17.76 per cent and compares favourably to all its peers. The debt to GDP ratio for Ghana is 67.5 per cent; Egypt is 92.3 per cent; South Africa, 52 per cent; Germany, 68.3 per cent; and the United Kingdom, 89.3 per cent.

“Nigeria’s debt to GDP ratio is still within a reasonable threshold. This administration will continue to pursue a prudent debt strategy that is tied to gross capital formation. This will be attained by driving capital expenditure in our ailing infrastructure which will in turn, unlock productivity and create the much needed jobs and growth.”

The minister emphasised that the Muhammadu Buhari-led administration was investing in critical infrastructural projects such as roads, railway and power in order to deliver a fundamental structural change to the economy that would reduce the nation’s exposure to crude oil.

She gave an assurance that the $5.5bn foreign loan was consistent with Nigeria’s Debt Management Strategy, whose main objective was to increase external financing with a view to rebalancing the public debt portfolio in favour of long-term external financing.

Some experts, however, opined that the debt to GDP ratio was not the best in measuring a country’s debt burden, saying that the use of debt to revenue ratio provided a better ratio for measuring a country’s debt burden as it showed the capacity to meet debt obligations.

In a telephone interview with our correspondent, a financial expert and Head of the Department of Banking and Finance, Nasarawa State University, Dr. Uche Uwaleke, stated that the debt to revenue ratio was a better measure.

According to the associate professor, the use of the index is a better way to measure a country’s capacity to pay debt and interest. He, however, said that the country hardly had any better option than to borrow, but insisted that debts should be tied to projects that were self-liquidating.

Uwaleke said, “There is no doubt that the country’s debt burden is high going by the debt to revenue ratio. There are other measures of the debt burden such as the debt to GDP ratio, which is currently around 18 to 19 per cent.

“The debt to revenue ratio is a better measure, because it measures the country’s ability to pay back. This challenge has been recognised by the government. The major risk we have in our debt burden is that we are carrying expensive local debts that are even of short-term nature.”

The country’s debt to revenue ratio rose from 35 per cent in 2015 to 60 per cent in 2016, according to the World Bank.

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

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Solid Minerals Sector Adds Over N1 Trillion to Nigerian Treasury in 16 Years – NEITI

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The Nigerian Extractive Industries Transparency Initiative (NEITI) said the solid minerals sector has contributed around N1.137 trillion in direct payments to various government levels over 16 years.

This was disclosed in the 2023 Solid Minerals Audit Report, the 16th audit cycle, which provided a comprehensive overview of the sector’s contributions from 2007 to 2023 published on Wednesday.

The report was conducted by indigenous firm Haruna Yahaya and Co., and covered the solid minerals industry’s economic contributions, revenue streams, and exports, providing recommendations for sector reforms.

The report showed a substantial increase in government receipts from N7.59 billion in 2007 to N341.27 billion in 2022, a 44-fold rise, indicating solid sector growth.

The 2023 report underscored the sector’s evolution into a vital revenue contributor for Nigeria, with cumulative contributions now exceeding N1 trillion. It disclosed that in 2022, the sector generated N345.41 billion, with a reconciled final revenue of N329.92 billion.

Meanwhile, the report also identified the solid minerals sector’s Gross Domestic Product (GDP) contribution at 0.83 percent in 2022, with incremental growth to 0.75 per cent in 2023, underscoring untapped potential.

The initiative reiterated the policy measures and reforms needed to unlock the sector’s capacity to significantly contribute to Nigeria’s economic diversification

“Company payments analysis indicated that total government revenue, including reconciled and unilaterally disclosed figures, reached N401.87 billion in 2023.

“Key revenue streams included VAT (N128.32 billion), FIRS taxes (N370.09 billion), Education Tax (38.64 percent), Company Income Tax (10.64 percent), and royalties (N9.06 billion).

The report also showed that discrepancies initially amounted to N301.6 billion but were reconciled down to N100 million, demonstrating NEITI’s transparency commitment.

The production and export data showed 95.07 million tonnes of minerals produced in 2023, with a significant export volume of 4.32 million metric tonnes, valued at N117.29 billion.

The report highlighted top mineral-producing states, including Ogun, Kogi, and Rivers, with Ogun leading production. Revenue contributions were led by Osun, Ogun, and Kogi states

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FG to Hike VAT on Luxury Goods by 15%, Exempts Essentials for Vulnerable Nigerians

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Nigeria’s Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, has announced plans by the Federal Government to raise the Value Added Tax (VAT) on luxury goods by 15% despite the ongoing economic challenges.

Minister Edun made this known in Washington DC, during a meeting with investors as part of the ongoing IMF/ World Bank Annual Forum.

While essential goods consumed by poor and vulnerable Nigerians will not be affected by the increase, Edun, however, the increase in VAT will affect luxury items.

He said, “In terms of VAT, President Bola Tinubu’s commitment is that while implementing difficult and wide-range but necessary reforms, the poorest and most vulnerable will be protected.

The minister also revealed that the bill is currently under review by the National Assembly and in due time, the government will release a list of essential goods exempted from VAT to provide clarity to the public.

“So, the Bills going through the National Assembly in terms of VAT will raise VAT for the wealthy on luxury goods, while at the same time exempting or applying a zero rate to essentials that the poor and average citizens purchase,” Edun explained.

Earlier in October, Investors King reported that the FG had removed VAT on diesel and cooking gas, among others to enhance economic productivity and ease the harsh reality of the current economy.

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Economy

Global Debt-to-GDP Ratio Approaching 100%, Rising Above Pandemic Peak

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The IMF sees countries debt growing above 100% of global GDP, Vitor Gaspar, head of the Fund’s Fiscal Affairs Department said ahead of the launch of the Fiscal Monitor (FM) Wednesday (October 23) in Washington, DC.

“Deficits are high and global public debt is very high and rising. If it continues at the current pace, the global debt-to-GDP ratio will approach 100% by the end of the decade, rising above the pandemic peak,” said Gaspar about the main message from the IMF’s Fiscal Monitor report.

The Fiscal Monitor is highlighting new tools to help policymakers determining the risk of high levels of debt.

“Assessing and managing public debt risks is a major task for policymakers. The Fiscal Monitor makes a major contribution. The Debt at Risk Framework. It considers the distribution of outcomes around the most likely scenario. The analysis in the Fiscal Monitor shows that debt risks are substantially worse than they look from the baseline alone. The framework should help policymakers take preemptive action to avoid the most adverse outcomes.”

Gaspar said that there’s a careful balance between keeping debt lower, versus necessary spending on people, infrastructure and social priorities.

“The Fiscal Monitor identifies three main drivers of debt risks. First, spending pressures from long term underlying trends, but also challenging politics at national, continental and global levels. Second, optimistic bias in debt projections. And third, increasing uncertainty associated with economic, financial and political developments.

Spending pressures from long term underlying trends and from challenging politics at national, continental and global levels. The key is for countries to get started on getting debt under control and to keep at it. Waiting is risky. The longer you wait, the greater the risk the debt becomes unsustainable. At the same time, countries that can afford it should avoid cutting too much, too fast. That would hurt growth and jobs. That is why in many cases we recommend an enduring but gradual fiscal adjustment.”

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