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Economy & Politics

Credit to Public Sector hit all time high as borrowing spree continues

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Data from the Central Bank of Nigeria reveals Nigeria’s credit to the private sector as a percentage of credit to the Federal Government is at a 10 year low of about 4.2x to 1. Bank credit to the Public sector is also at a quarterly average all time high of about N5.5 trillion recorded in the first quarter of 2017.

On average, credit to the private sector is now roughly 4.2x that of public sector for the first five months of 2017. The last time we saw this level of multiple was in 2006.

Public/Private sector debt Interactive chart

 

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The data reveals the credit to the domestic economy as at May 2017 was about N26.7 trillion with N21.9 trillion being credit to the private sector and N4.8 trillion being credit to the public sector.

According to the Debt Management Office, Nigeria’s domestic debt is estimated at N11 trillion as at December 2016.  Nigeria’s domestic debt stock was just N8.8 trillion in December 2014.

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Domestic Debt Interactive Chart

 

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Recent lending spree currently embarked upon by the Government is attributed to this rise. Just two years ago, in the first quarter of 2015 when the multiple averaged 9x. However, increased domestic lending coupled with an enforced compliance of the Treasury Single Accounts (TSA) requirements has narrowed the multiple.

Commercial Banks have also signaled their intent on doubling down on purchasing government securities in 2017, as they grapple with poor asset quality and write downs. This move has also been helped by lucrative interest rates offered by state and federal governments with yields hitting as high as 20% per annum.

Likely Implications?

At 4x multiple, the fear of a crowding out the private sector is still minimal as we do not see the government increasing its lending from commercial banks beyond N5 trillion. The challenge however, is that we might be going through a period stagnation that will see lending to the private sector remain within the N21-N22 trillion levels. Credit to the private sector is currently up 15% year on year but is flat year to date. In contrast, lending to the public sector has increased by 28% year on year and 3.5% year to date.

The CBN’s is expected to keep its benchmark monetary policy rate at 14% in line with its mission to keep government borrowing cost above the inflation rate of 16.1%. Other indices such as debt to GDP ratio  continue to instigate government’s borrowing appetite in spite of the obvious downsides on revenues. Already, the government’s debt service to revenue is running at 44% and is unlikely to fall as oil prices remain depressed and CBN continues with its forex policies.

For the ordinary Nigeria and small businesses, the implications are that your lending rate will remain high as banks have a ready channel via which it can fund its deposits.

 

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Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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Economy & Politics

BREAKING: Buhari sacks Service Chiefs, appoints new

President Buhari has appointed new Service Chiefs to replace the former with immediate effect.

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PIB; Will the jinx be broken this time around?, President Buhari may sign 2020 Budget tomorrow, President Buhari approves N37 billion for National Assembly renovation, President Buhari appoints Sarki Auwalu to head DPR , FG may stop interstate and inter-town travels, COVID-19: President salutes Elumelu, Dangote, Atiku, Banks, others for support, Naira export earnings, Covid-19: FG to set up N500 billion intervention fund, sovereign wealth, FG issues guidelines on implementation of gradual easing of lockdown nationwide, Electricity: FG approves one year waiver of import on meters, Buhari backs Lagos State Government Judicial Panel of Inquiry

President Muhammadu Buhari has appointed new Military Service Chiefs, and congratulates the outgoing Service Chiefs for efforts of “enduring peace to the country.”

This was disclosed by Presidential media aide, Femi Adesina in a social media post on Tuesday. President Buhari has been urged by the National Assembly to sack Service Chiefs over rising insecurity in the county.

Adesina said: “PMB appoints new Service Chiefs. Maj Gen LEO Irabor, CDS, Maj Gen I Attahiru, Army, Rear Adm AZ Gambo, Navy, AVM IO Amao, Air Force. He congratulates outgoing Service Chiefs on efforts to bring enduring peace to the country.”

“I have accepted the immediate resignation of the Service Chiefs, and their retirement from service. I thank them all for their overwhelming achievements in our efforts at bringing enduring peace to Nigeria, and wish them well in their future endeavours,” Buhari disclosed in a separate statement.

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What you should know: President Buhari had come under heavy criticism in the last couple of years over his failure to sack the Service Chiefs for failing to tackle insecurity in the country.

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Economy & Politics

Investing in digital economy, infrasture crucial to mitigate impact of COVID-19 pandemic – World Bank

Investing in digital economy will be crucial to mitigate the impact of COVID-19 and foster a sustained recovery in Sub-Saharan Africa.

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World Bank, Focus on lifting people out of poverty - World Bank tells FG , World Bank, IFC to assist in solving Nigeria’s infrastructure deficit , EXCLUSIVE: World Bank tasks developing nations to tap opportunities in GVCs, Warning signs: Nigerians living in extreme poverty might increase by 30 million – World Bank, US, China and UK’s protectionism ambition to affect Nigeria’s export, FDI , Terrorism bane to Nigeria's Agric development - World Bank

The World Bank has asserted that investing in the digital economy and infrastructure will be crucial to mitigate the impact of the COVID-19 pandemic and foster a sustained recovery and foster a sustained recovery in Sub-Saharan Africa.

This is according to the World Bank In Africa report – #AFRICAN CAN.

The report noted that in a time of Covid-19, dominated by lockdowns and social distancing, investing in the digital economy and infrastructure will be crucial to mitigate the impact of the COVID-19 pandemic and foster a sustained recovery.

It argued that the adoption of digital technologies by governments, households and firms in Sub-Saharan Africa still lags behind that of other regions in the world.

The report, therefore, maintains that government intervenes to reduce the cost of devices and services, avoid disconnections for lack of payment, and increase bandwidth will be key, considering that the road to economic recovery is projected to be long and arduous.

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What they are saying

The report states that:

“The road to recovery will be long and arduous and will require policies and investments that focus on connecting people to job opportunities, which can help end extreme poverty, particularly post-COVID-19.”

What you should know

Even though the World Bank did not suggest the form that the policies and investments would take in the report, the Bank, in a separate report — flagship report – Global Economic Prospects – as reported by Nairametrics on the 19th of January, 2021, has argued that productivity-enhancing structural reforms are required for quick economic recovery.

The Bank suggests these productivity-enhancing reforms encompass promoting education, effective public investment, sectoral reallocation, and improved governance. Investment in green infrastructure projects can provide further support to sustainable long-run growth while also contributing to climate change mitigation.

According to the report:

  • Sub-Saharan Africa is home to more than 1 billion people, half of whom will be under 25 years old by 2050.
  • It is a diverse continent offering human and natural resources that have the potential to yield inclusive growth and wipe out poverty in the region, enabling Africans across the continent to live healthier and more prosperous lives.
  • With the world’s largest free trade area and a 1.2 billion-person market, the continent is creating an entirely new development path, harnessing the potential of its resources and people.
  • Knowledge is essential for governments to make better policies and institutions to make more effective decisions, thus, governments should pay attention to research and analysis.

According to World Bank’s Flagship report – Global Economic Prospects.

  • Investment is projected to shrink again this year in more than a quarter of economies – primarily in Sub-Saharan Africa (SSA), where investment gaps were already large prior to the pandemic.
  • Growth in Sub-Saharan Africa is expected to rebound only moderately to 2.7% in 2021 – 0.4% point weaker than previously projected, before firming to 3.3% in 2022.

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Economy & Politics

Senate President lists benefits of PIB as public hearing on the bill opens

Ahmad Lawan has listed the benefits of the PIB presently before the National Assembly for consideration.

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Senate president warns about dangers of youth unemployment, National Assembly to ensure youth empowerment schemes are realized - Lawan

The President of the Senate, Ahmad Lawan, has said that the Petroleum Industry Bill (PIB) which is presently before the National Assembly for consideration and passage will ensure that Nigerians benefit optimally from crude oil production and sale of fossil fuel reserves.

According to a statement that was issued by the Special Assistant, Press to the Senate President, Tabiowo Ezrel, this disclosure was made by Lawan, while declaring open a 2-day public hearing on the bill by the National Assembly on Monday, January 25, 2021.

The Senate President pointed out that the National Assembly in its consideration of the piece of legislation would ensure that the bill when passed into law, guarantees improved revenue earnings for the country.

READ: Investors gain big on Airbnb, now worth over $100 billion

What the Senate President is saying

Lawan in his statement said, ‘’Let me say this, we (National Assembly) will pass this bill not without ensuring that it is a bill that satisfies certain conditions. Nigeria is blessed with these resources, we want Nigeria to benefit optimally from them. In fact, we are in a hurry because we have lost so many years of benefits that we could have had.’’

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He, however, noted that the non-passage of the PIB had been a major drag on the industry over the years, significantly limiting its ability to attract both local and foreign capital at a time when many other countries are scrambling to exploit their oil and gas resources.

READ: FG to begin online registration, monitoring of petrol stations, depots

Going further, Lawan said, ‘’The mere knowledge that the nation’s oil industry is still being governed by laws enacted more than 50 years ago is ludicrous and extremely disappointing.

‘’As legislators, we will strive to deliver a Bill that will enhance the growth of our oil and gas industry, modernize our fiscal system and enhance competitiveness, while creating harmony for all stakeholders. This is a promise we have made and that we shall achieve.’’

READ: FG assures oil companies of lower taxes in new PIB

‘’Nigeria must have an oil and gas industry that benefits its people. Equally, our oil and gas industry must be competitive. We must create a sustainable investment climate, where business in the sector will flourish,’’ he said.

He also added that the determination by the legislature to pass the Bill is driven by the need to overhaul a system that has refused to operate optimally in line with global standards, resulting in loss of continental competitiveness, transparency, accountability, good governance and economic loss for the petroleum industry and the country.

The Different chapters of the PIB

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The Senate President revealed that the PIB comprises of 4 chapters that outline;

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  • How to create efficient and effective governing institutions with clear and separate roles for the petroleum industry,
  • Establish a framework for the creation of a commercially oriented and profit-driven National Petroleum Company,
  • Promote transparency, good governance and accountability in the administration of the petroleum resources of Nigeria among others.

READ: Buhari directs FIRS, others to ensure strict compliance of tax payment by foreign firms

Other benefits of the PIB

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He also noted that the PIB upon passage and assent into law by the President;

  • Would foster sustainable prosperity within host communities, provide direct social and economic benefits from petroleum operations to host communities,
  • Create a framework to support the development of host communities among others
  • Establish a progressive fiscal framework that encourages investment in the Nigerian Petroleum Industry,
  • Balancing rewards with risk and enhancing revenues to the Federal Government of Nigeria,
  • Provide a forward-looking fiscal framework that is based on core principles of clarity, dynamism and fiscal rules of general applications,
  • Establish a fiscal framework that expands the revenue base of the Federal Government while ensuring a fair return to investors.

READ: FG invalidates SIM integration using BVN generated NIN, applicants must visit NIMC offices

Lawan assured that the National Assembly during the public hearing would deal with all issues relating to the oil and gas industry with thoroughness and effectiveness so as to avert colossal losses to the nation’s economy.

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