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All states’ debts exceed revenue, contravene DMO rule- FRC

All the 36 states of the federation contravened the guidelines of the DMO by contracting debts exceeding their 12-month revenues.

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All states' debts exceed revenue, contravene DMO rule- FRC

All the 36 states of the federation contravened the guidelines of the Debt Management Office (DMO) by contracting debts exceeding their 12-month revenues. This was disclosed by the Fiscal Responsibility Commission (FRC).

According to the DMO guidelines on borrowing, no state should have outstanding loans that are more than 50% of their total revenues in the previous 12 months.

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Director-General, DMO, Ms. Patience Oniha

According to data provided by the FRC in its 2018 Annual Report, all the states had debts more than 50% of their 12-month revenues.

The report showed that a state had debt to revenue ratios as high as 781% while some had lower debt to revenue ratios. However, the FRC argued that none of the states could be said to have overborrowed.

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It hinged its argument on the fact that the President of the country that was supposed to set the borrowing limit for the states, according to the FRC Act, had not set any limit.

[READ MORE: President Buhari not to blame for increase in debt – DMO DG)

The states with the highest debt to revenue ratios

Nonetheless, going by the limit set by the foremost debt management agency in the country, no state is within the limit as they have all gone beyond the provided set order.

Lagos led the rest of the states. It had net revenue of N119.02 billion, with a total debt of N968.16 billion. This left the state with a debt to revenue ratio of 813.41%.

It also means that the state had gone beyond the DMO limit by 763.41%. Lagos was followed by Osun State with a debt to revenue ratio of 781.71%. While it had net revenue of N22.84 billion, its total public debt stood at N178.52 billion. This means that the state had a debt to revenue ratio of 781.71% and had gone beyond the limit set by the DMO by 731.71%.

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Other top states with high debt to revenue ratios

  • Other top states in terms of high debt to revenue ratios include Cross River, Ekiti, Ogun, Plateau, Edo, Bauchi, Adamawa, Kaduna, Nasarawa, Imo and Oyo States. The Federal Capital Territory Administration also made the list of top subnational governments with high debt to revenue ratio.
  • Cross River State had net revenue of N36.95 billion, a debt of N225.91 billion, debt to revenue ratio of 611.31%. It, therefore, had gone beyond the limit by 561.31%.
  • Ogun State had net revenue of N39.64 billion, a debt of N130.42 billion and a debt to revenue ratio of 328.97%. The state, therefore, had passed the limit set by the DMO by 278.97%.
  • For Plateau State, the revenue stood at N43.89 billion while the debt stood at N109.23 billion. The debt to revenue ratio stood at 248.9% while it had gone beyond the limit by 198.9%.
  • Edo had net revenue of N69.17 billion, total debt of N171.63 billion and debt to revenue ratio of 248.13%. It overstepped the limit by 198.13%.
  • For Bauchi, the revenue stood at N54.02 billion while the debt stood at N133.48 billion, thereby giving debt to revenue ratio of 247.1%. The state exceeded the limit by 197.1%.
  • Adamawa had revenue of N49.51 billion, a debt of N119.68 billion and a debt to revenue ratio of 241.73%. It exceeded the limit by 191.73%.
  • Kaduna had revenue of N68.84 billion, a debt of N154.4 billion and a debt to revenue ratio of 224.26%. It exceeded the limit by 174.26%.
  • For Nasarawa, the revenue stood at N47.55 billion while the debt stood at N103.53 billion. The state exceeded the 50% ratio by 167.73%.
  • Imo had revenue of N54.18 billion, a debt of N117.05 billion and a debt to revenue ratio of 216.04% and therefore exceeded the limit by 166.04%.
  • Oyo had revenue of N59.29 billion, a debt of N123.75 billion and a debt to revenue ratio of 208.72%. It exceeded the limit by 158.72%.

[READ ALSO: DMO set to auction N150 billion in FGN Bonds to investors)

Patricia

36 states contravene DMO rule, took debt more than revenue

The states with the least debt to revenue ratios

  • The states with the least debt to revenue ratios were Yobe, Jigawa, Katsina, Sokoto and Bayelsa. Yobe had revenue of N36.21 billion, a debt of N52.87 billion and a debt to revenue ratio of 68.48%. It exceeded the limit by 18.48%.
  • For Jigawa, the revenue stood at N44.99 billion, the debt stood at N60.33 billion and the debt to revenue stood at 74.58%. It exceeded the limit by 24.58%.
  • Katsina had revenue of N61.65 billion, a debt of N49.93 billion and a debt to revenue ratio of 80.98%. It exceeded the limit by 30.98%.
  • For Sokoto, the revenue stood at N54.46 billion, the debt N50.64 billion and the debt to revenue ratio, 92.99%. It exceeded the ratio by 42.99%.
  • Bayelsa had revenue of N153.1 billion, a debt of N147.43 billion and a debt to revenue ratio of 96.29%. The state exceeded the limit by 46.29%.

Abiola has spent about 14 years in journalism. His career has covered some top local print media like TELL Magazine, Broad Street Journal, The Point Newspaper. The Bloomberg MEI alumni has interviewed some of the most influential figures of the IMF, G-20 Summit, Pre-G20 Central Bank Governors and Finance Ministers, Critical Communication World Conference. The multiple award winner is variously trained in business and markets journalism at Lagos Business School, and Pan-Atlantic University. You may contact him via email - abiola.odutola@nairametrics.com.

2 Comments

2 Comments

  1. Maruf A. O

    February 7, 2020 at 7:41 am

    I pray our dear nation should not crash one day. If there’s no checkmate and balance on the trend of borrowing by today’s government. May Almighty God save the country.

  2. Anonymous

    February 8, 2020 at 1:34 pm

    Most of the states are owing more than their total revenue for ten years. Is there any future for Nigeria?

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Business News

Brent crude price fails to remain over $40, concerns over pledge cut strengthens

Brent crude lost 1.14 %, to trade at $39.38 a barrel at 3.40 am Nigerian time, failing to stay over the $40 resistance price level. 

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Where next for oil prices?, Brent crude futures gained 0.14 to trade at $34.70 at the time this report was drafted, recovering some of its losses earlier in the oil trading session. , Brent crude price fails to remain over $40, concerns over pledge cut strengthens

Brent crude prices dropped on Thursday morning, reversing the gains recorded yesterday, on reports that supply will rise if major crude oil producers fail to reach an agreement on crude oil output cuts that have helped in stabilizing crude oil prices since the start of COVID-19.

Brent crude lost 1.14 %, to trade at $39.38 a barrel at 3:40 am Nigerian time, failing to stay over the $40 resistance price level.

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OPEC members such as Nigeria and Iraq have shown weak compliance in meeting their crude oil production reduction targets set last month.

“Overall, the market is moving in the right direction with the gradual easing of the lockdown. But we still need to be cautious. There is always a risk of another wave of the coronavirus,” the first OPEC source said.

“The other thing is how quickly demand patterns will recover. Inventories are still above average levels and that needs to be tackled.”

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(READ MORE: OPEC+ to discuss extension of output cut as Chinese demands boost Nigerian oil)

OPEC+ had initially agreed to reduce crude oil production by a record 9.7 million barrels per day, or about 10% of global production of crude oil, for the month of May and June in order to minimize the damage caused by COVID-19 pandemic in weakening global demand for crude oil.

Oil prices gain likely to halt over demand uncertainty as US-China tension intensifies, Brent crude price fails to remain over $40, concerns over pledge cut strengthens

Meanwhile, OPEC+ private sources reportedly told Reuters that Saudi Arabia and Russia have agreed on a precursory deal to extend oil production cuts by one month while putting pressure on countries with poor compliance such as Nigeria and Iraq to deepen their oil production cuts.

What you should know about OPEC+: OPEC + came into light in late 2016 as a means for major oil-exporting countries to exercise their control over crude oil prices. Essentially, OPEC+ is an amalgamation of OPEC (Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates, Venezuela) and high oil-exporting non-OPEC countries like Mexico, Oman, South Sudan, Kazakhstan, and Russia.

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Rather than reducing crude oil production cuts in July, OPEC+ was deliberating on keeping those cuts beyond June. 

Patricia

“Saudi Arabia and Russia are aligned on the extension for one month,” one OPEC source said.

“Any agreement on extending the cuts is conditional on countries who have not fully complied in May deepening their cuts in upcoming months to offset their overproduction,” the private source told Reuters.

“I don’t think there will be a meeting on Thursday. There are still many challenges,” another OPEC source added.

 

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Business News

Saudi Arabia and Russia agree to extend output cuts, but there’s a condition

The two leading oil producers in the cartel are not just demanding that these non-compliant member countries implement the output cuts already promised, but also want deeper output cuts in the coming months to make up for their earlier failings.

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Saudi Arabia and Russia agree to extend output cuts with a condition

Saudi Arabia and Russia, the leading producers in the OPEC+ alliance, have reached a preliminary agreement to extend the current level of output cut of 9.7 million barrels per day by an additional month.

The agreement was reached on the condition that member countries, led by Iraq and Nigeria, who failed to comply with the agreed output cut for May, must ensure over-compliance going forward in order to make up for the non-compliance of their allocated quotas.

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The alliance, which helped to revive global oil markets, was earlier troubled by disagreement among members after the likes of Nigeria broke their promises. The Russians and Saudis have, therefore, warned that they will start phasing out supply cuts if the likes of Iraq, Nigeria, and even Kazakhstan do not shape up and conform to the earlier agreement.

The two leading oil producers in the cartel are not just demanding that these non-compliant member countries implement the output cuts already promised, but also want deeper output cuts in the coming months to make up for their earlier failings.

(READ MORE: Global oil market to re-balance in 2 months’ time)

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According to the initial agreement reached in April, OPEC+ was to cut 9.7 million barrels per day in combined production for May and June and then ease these to 7.7 million barrels per day until the end of the year. From January 2021, the production cuts would be further eased to 5.8 million barrels per day, to remain in effect until the end of April 2022.

Saudi, Russia agree to cut oil by 20 million barrel, Further oil production cut required to keep oil price above $40 in 2020 , OPEC + deal to boost Nigeria’s earnings by $2.8 Billion, Saudi Arabia and Russia agree to extend output cuts with a condition

Meanwhile, despite the non-compliance by some OPEC member countries in May, the market expected that the OPEC+ coalition would be motivated enough to extend the current output cut of 9.7 million barrels per day through July/August.

It had been speculated that the OPEC+ cartel could hold its June meeting earlier than initially planned. However, the meeting is being held up by the fact that Saudi Arabia and Russia will be requiring assurances from non-compliant members that they will over-comply going forward, as a form of compensation. These members are Iraq and Nigeria from OPEC and Kazakhstan from non-OPEC.

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Around the World

Bonny light up by over 5%, inches closer to $40

Crude oil prices, against earlier predictions, surged past the $40 per barrel mark in the early hours of Wednesday – the highest in almost 3 months.

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Bonny light, Oil prices, Nigeria’s sweet crude hits $12, yet nobody is buying, Oil prices slump from 5 week high over lockdown concerns, Crude oil prices hit $40 per barrel as inventory build-up declines

As part of signs that the global oil market is moving closer to rebalancing, Nigerian Bonny light price against earlier predictions, surged closer to $40, as it closed at $37.57 per barrel mark, up by 5.57% on Wednesday.

This is coming against the backdrop of a decline in crude oil inventory by 483,000 barrels for the week ending May 29, as estimated by the American Petroleum Institute (API) on Tuesday, and signs that OPEC+ producers are close to agreeing on a short extension of their historic deal to cut output.

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According to data from oilprice, the Brent crude was sold for $39.79 per barrel. The American WTI dropped to $36.79 per barrel.

Meanwhile, Russia and some other OPEC+ member countries are pushing for an extension by a month or 2 of the current output cut of 9.7 million barrels per day beyond June. This is within the 1-3 months’ extension that Saudi Arabia is pushing for.

(READ MORE:Crude oil prices rally as investors remain optimistic about oil production cut)

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Either way, the market likes the idea of more cuts, with the understanding that going through with the earlier agreed output cut after June, will not be enough to draw down the global oil glut that is negatively affecting prices and building up inventories.

crude oil, Nigeria's Crude oil, Bonny light crude oil crashes as Nigeria runs into deeper revenue crisisBonny light crude oil crashes as Nigeria runs into deeper revenue crisis, Brent crude futures gained 0.92%, at $36.08 per barrel, while the U.S. West Texas Intermediate (WTI) crude futures also gained 0.54%, at $33.67 a barrel, Crude oil prices hit $40 per barrel as inventory build-up declines

Analysts had predicted an inventory build of over 3 million barrels, and last week, the API had predicted a crude oil inventory of 9.731 million barrels. Meanwhile, the Energy Information Administration (EIA) estimated that the inventory was going to be up by 7.9 million barrels by last week.

 

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