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Nigerian economy could slide into financial crisis – Finance Minister

Zainab Ahmed, the Nigerian Finance Minister has warned that revenue shortfall may put the economy in a financial crisis if not attended to.

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Zainab Ahmed, Pres. Buhari to review Finance Bill, tax reform yearly to finance budget 

The Minister of Finance of NigeriaZainab Ahmed, has warned that the country’s economy might fall into financial crisis due to revenue shortfalls if appropriate measures are not taken.  

The newly sworn-in minister reportedly disclosed this at the headquarters of the Ministry shortly after the inauguration of the new ministers by President Muhammadu Buhari.  

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Her Concerns: According to Ahmed, Nigeria faces a near fiscal crisis, and it is a big task to rescue the depleting revenue from continuous fall. Stressing further, the Minister noted that while revenue is falling, the government still has various financial obligations to meet which include debt repayment, salaries and other statutory obligations.  

“As you know, our nation is facing a near fiscal crisis, and it is up to us to make sure that it is arrested and ensure that we don’t slip into a crisis. We must increase revenues; if not, our country will slip into a fiscal crisis. 

We have been growing in eight consecutive quarters, but it is a growth that is still fragile. Our revenues have grown, but they are still 55% of what we have budgeted. We still have to pay salaries and other statutory obligations. 

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We have to pay debts and we need to operate on a day-to-day basis, and we need to do capital projects for the sustained growth of our economy.” 

[READ MORE: 5 things Buhari’s new Finance Minister must do within 100 days]

Finance Minister Zainab Ahmed, Fuel Subsidy removal in Nigeria,

Minister of Finance, Zainab Ahmed

On the merger of the ministry: Speaking further, Ahmed noted that the President had doubled the task of the Ministry of Finance by merging it with the Ministry of Budget and National Planning. According to the Minister, the merger came as a result of the achievement the Ministry recorded in the last administration.  

“The President has just doubled our assignment. We got this assignment because of the quality of work that we have produced. Ministry of Finance has some of the best cerebral civil servants that we have today. That we have been re-matched with the Ministry of Budget and National Planning is also a very weighty responsibility that has been given to us.” 

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Ahmed further noted that the President had brought her back so that she could continue to implement the Economic Recovery and Growth. 

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The bottom line: While the Minister stated the obvious, there seems to be a high mountain to climb for the Ministry in the next four years. Nairametrics in an earlier publication analysed five major things expected from the Finance Minister in the next 100 days.  

According to Nairametrics, among other things that Nigerians would expect from Ahmed are improving the country’s fiscal revenue, provide funding from critical infrastructural projects, the budget implementation in the face of depleting revenue and maintain good relations with the central bank.  

[READ MORE: Is Nigeria’s appropriation bill a scam?]

Samuel is an Analyst with over 5 years experience. Connect with him via his twitter handle

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Business News

REMINDER: FGN Ijara Sukuk Bond auction closes on 2nd June 2020

Proceeds from the Ijara Sukuk Bond auction will be used solely for the construction and rehabilitation of key roads across the six geopolitical zones of the country.

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The Debt Management Office (DMO), on behalf of the Federal Government, has reminded the general public that the offer for subscription to the N150 billion FGN Ijara Sukuk Bond will close on Tuesday June 2nd, 2020.

The offer for subscription was announced some days ago by the DMO, as Nairametrics reported. Below are the details of the offering.

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The Auction: N150, 000,000,000 – Rental Rate of 11.20% per annum IJORA SUKUK FGN JUNE 2027 (7-Yr Opening)

Arranger: FBNQuest Mechant Bank Limited and Lotus Financial Services Limited.

Opening Date: May 21, 2020

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Closing Date: June 2, 2020

Settlement Date: June 9, 2020

Summary of the Offer

Instrument Type: Ijarah (Lease) Sukuk

Issuer: FGN Roads Sukuk Company 1 Plc. on behalf of the Federal Government of Nigeria.

Units of Sale: N1,000 per unit subject to a minimum Subscription of N10,000 and in multiples of N1,000 thereafter.

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Rental Payment: Payable Half Yearly.

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Redemption: Bullet repayment on the date of maturity

Use of Proceeds: Proceeds will be used solely for the construction and rehabilitation of key roads across the six geopolitical zones of the country.

(READ MORE: FG impounds aircraft for illegal flight operations)

About Sukuk bonds  

Sukuk is derived from the word Sakk, which can be translated to mean legal instrument, deed, and cheque. Sakk can also mean to strike a deal on a paper document.

The origin of Sukuk dates to 7th century AD, where the first Sukuk transaction took place in Damascus, Syria in the Great Mosque of Damascus (Umayyad Mosque).

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Since Islam prohibits usury – collecting interest from your loans – interest-based bonds are banned in Muslim nations.

Difference between Sukuk and regular bonds

Sukuk indicates ownership of an asset. The assets that back Sukuk are compliant with Shariah. In other words, such assets adhere to the Islamic prohibitions on gambling, alcohol, tobacco, narcotics, and adult entertainment products and services.

Sukuk notes pay a fixed percentage return as a profit-sharing percentage of the underlying assets’ revenues.

Regular bonds, on the other hand, pay a fixed rate of return as interest (coupon) semi-annually or annually. 

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Business News

Just In: PPPRA reduces petrol price to N121.50 per litre

“After a review of prevailing market fundamentals in the month of May and considering marketers realistic operating costs as much as practicable, we wish to advise of a new PMS guiding pump price…”

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NNPC, Reduce funding oil subsidy - IMF to Nigeria , Oil marketers, PENGASSAN call for subsidy removal 

The Petroleum Products Pricing Regulatory Agency (PPPRA) has announced a new retail price band for oil marketers.

In a circular dated May 31st, as seen by Nairametrics, the downstream regulator said oil marketers are now expected to sell petrol within the price range of N121.50 and N123.50. Part of the circular said:

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“Please recall the recently approved pricing regime which became effective March 19, 2020, and the provision for the establishment of a monthly price band within which petroleum marketers are expected to sell PMS at the retail stations.

“After a review of prevailing market fundamentals in the month of May and considering marketers realistic operating costs as much as practicable, we wish to advise of a new PMS guiding pump price with the corresponding ex-depot price for the month of June 2020, as follows; price band N121.50 – N123.50 per liter.”

Details later…

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Hedge funds, institutional investors rush to own stakes in Bitcoin

Hedge funds are firms that offer alternative investments to a specific type of investors (high net worth individuals), in a bid to protect their investment portfolios from market uncertainty, while generating positive returns regardless of market sentiments.

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Bitcoin users rise in Nigeria despite Senate, CBN campaign against it, Nigerians losing millions to crypto fraud, Investing in cryptocurrencies in this economic shutdown, Bitcoin could hit above $100,000 by August 2021, Hedge funds, Institutional investors rush to have a stake in Bitcoin

With global economic uncertainty gradually becoming a daily norm, institutional and hedge funds around the world have been rushing to have a stake in crypto assets which  all have been outperforming other financial assets in 2020).

Just recently, a popular hedge fund based in New York –Grayscale Investments –caught the investment world by surprise by buying up Bitcoin (BTC) at a great rate in recent months.

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Lennard Neo, the head of research at Stack Funds, told Cointelegraph that institutional investors have been seeking for other options, not just to provide returns, but also to hedge their existing portfolio from downside risks. Neo said:

“Similar to Grayscale, Stack has seen an uptick in investors’ interest — almost double that figures of pre-crash in March — in Bitcoin. I would not say they are ‘gobbling up BTC’ blindly but cautiously seeking traditional structured solutions that they are familiar with before making an investment.” 

(READ MORE:The Empirical Truth about an average Nigerian’s price point)

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In addition, Paul Cappelli, a portfolio manager at Galaxy Fund Management, explained in detail the reasons for this demand. According to him, “we’re seeing increased interest from multiple levels of investors’ wealth channels, independent RIAs, and institutions.

“The recent BTC halving came at an interesting time amid the COVID-19 outbreak and the growing unease about quantitative easing. He noted: “It clearly demonstrated BTC’s scarcity and future supply reduction as concerns deepened around unprecedented stimulus by the Fed with the CARES Act.” 

Also, Michael Sonnenshein, the Managing Director of Grayscale Investments, explained briefly why his firm uses Bitcoin as an option in hedging its firm’s portfolio position.

“All three are facing issues this time around. Bitcoin has emerged as an alternative hedge, operating independently of the dramatic monetary policies enacted by central banks,” he said.

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What you need to know about Hedge Funds

They are firms that offer alternative investments to a specific type of investors (high net worth individuals), in a bid to protect their investment portfolios from market uncertainty, while generating positive returns regardless of market sentiments.

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