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Economy & Politics

BOOM: Nigeria’s total debt portfolio hits at N27.4 Trillion

Nigeria’s total debt stock as at December 2019 included N21.7 trillion owed by the Federal Government and N5.6 trillion owed by the state governments.

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All states' debts exceed revenue, contravene DMO rule- FRC, Nigeria’s total debt portfolio as at December 2019 stands at N27.4 trillion

The latest data released by the Debt Management Office (DMO) shows that Nigeria’s total debt stock as of December 2019 stood at N27.4 trillion. This includes N21.7 trillion owed by the Federal Government and N5.6 trillion owed by the state governments.

  • The Federal Government’s debts, therefore, make up 79.59% of the country’s total debt, while the states and the FCT government debt accounted for the remaining 20.41%.
  •  Foreign debts account for 32.93% of the total debt at N9.02 trillion, with the Federal Government owing N7.53 trillion and the state governments owing N1.48 trillion.
  • Domestic debts made up the remaining 67.07%. The Federal Government had a domestic debt portfolio of N14.2 trillion, accounting for 52.09% of total debt stock, while the states owed N4.1 trillion, 14.99% of the total debt stock.

[READ MORE: Nigeria’s total debt to hit N33 trillion – Senate)

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What this means: These figures show a substantial increase in Nigeria’s public debt portfolio from N26.22 trillion in September 2019, to N27.4 trillion by the end of the next quarter.

FGN Bonds record first undersubscription in 2 years, More borrowing expected as DMO’s Oniha explains President Buhari’s thirst for loan 

Patience Oniha, Director-General, Debt Management Office

According to the DMO, “The CBN Official Exchange Rate of US$1 to NGN326 as of December 31, 2019, was used in converting the Domestic Debts to USD.”  This is in contrast to the previous report where the agency used an exchange rate of N307 to the dollar to convert the country’s domestic debts stock to US dollars as of September 2019.

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By implication, the mere adjusting of the exchange rate increased the country’s debt profile by N1.5 trillion. As the country’s official exchange rate continues to climb due to the pressure on the naira, the debt figures as of March 2020 may turn out significantly higher than any of the previous quarters.

What to expect: Experts believe things could get worse especially due to coronavirus-induced spluttering of the global economy and the crash in global oil prices.

Clement Ofuani, a one-time Senior Special Assistant to late former President Umaru Musa Yar’Adua on Policy, stated that the reduction of economic activities in countries like China where Nigeria’s crude is bought might have compromised the government’s ability to service foreign debts this year.

[READ ALSO: Nigeria’s total debt rises to N26.14 trillion)

“The implications of these are that the government’s fiscal receipts are imperiled and foreign exchange inflow compromised.  

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“Our ability to service foreign debt is in jeopardy, meaning that the ability to borrow more is practically impossible,” he said.

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Ofuani, who is also a Chartered Accountant, noted that the situation puts the country’s fiscal health in peril.

According to him, the ability of the government to even pay salaries is questionable now, as the exchange rate of the naira has continued a downward slide against the dollar and will continue into the foreseeable future.

Ruth Okwumbu has a MSc. and BSc. in Mass Communication from the University of Nigeria, Nsukka, and Delta state university respectively. Prior to her role as analyst at Nairametrics, she had a progressive six year writing career. As a Business Analyst with Narametrics, she focuses on profiles of top business executives, founders, startups and the drama surrounding their successes and challenges. You may contact her via ruth.okwumbu@nairametrics.ng

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Economy & Politics

President Buhari directs Ministries of Power, Finance, BPE to seal Siemens deal

Presidency has approved the release of funding for the first part of Phase 1 of the PPI, to kick-off the pre-engineering and concession financing workstreams.

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Nigeria-Siemens power deal get N61 billion allocation 

President Muhammadu Buhari has directed the Ministries of Power, Finance, and the Bureau of Public Enterprise (BPE) to conclude the nation’s engagement with Siemens AG over regular power supply.

The directive, which was issued via the Presidency’s Twitter handle on Wednesday, was to start the pre-engineering & concessionary financing aspects of the Presidential Power Initiative (PPI).

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PPI is a power infrastructure upgrade and modernization Programme agreed to by the Federal Government and Siemens AG of Germany, with the support of the German Government. The ultimate goal of the initiative, according to the government, is to modernize and increase the Nigerian electricity grid capacity from its current capacity of  about 5 GW to 25 GW, over three phases.

How it works: Under the PPI, Nigeria on behalf of the other shareholders in the Electricity Distribution Companies (DisCos), will invest in infrastructure upgrades in the form of improved payment systems, distribution substations, transformers, protection devices, smart meters, and transmission lines among others.

The President explained that all DisCos have, directly and through the BPE, been diligently carried along over the last 15 months to understand in detail the challenges in the electricity systems.

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Funding: The funding for the PPI will be secured under concessionary terms (up to 3-year moratorium and 12-year repayment at concessionary interest rates) through the German Euler Hermes cover, which Nigeria will on-lend as a convertible loan to the other shareholders in the DisCos.

According to the statement, President Buhari has approved the release of funding for the first part of Phase 1 of the PPI, to kick-off the pre-engineering and concession financing workstreams.

“To ensure fairness and transparency of the intervention, the President has also directed that the nation engage the International Finance Corporation (‘IFC’) to assist in developing the commercial structure of the intervention…

“The President has also directed that to ensure value for money and preserve the integrity & transparency of the procurement process under the Govt-to-Govt framework, Siemens AG shall be solely responsible for nominating its EPC partners to perform all onshore works; NO middlemen.

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“Our goal is simply to deliver electricity to Nigerian businesses and homes… Our intention is to ensure that our cooperation is structured under a Govt-to-Govt framework. No middlemen will be involved, so that we can achieve value for money for Nigerians,” President Buhari added.

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The PPI journey started on August 31, 2018, when Chancellor Angela Merkel visited Nigeria and met with President Buhari. Then the Chancellor brought along with her a business delegation that included the Global CEO of Siemens.

Nigeria and Germany agreed to explore cooperation in a number of areas, including Power.

PPI was designed to deliver improved power supply nationwide, with attendant results in job creation, investor confidence, cost and ease of doing business and economic growth. The partnership is also  expected to guarantee training & capacity building for thousands of young Nigerians (non-graduates, students & graduates).

Other goals include the creation of economic opportunities for Nigerian engineering companies that will serve as local vendors for the provision of manpower and equipment. Overall, the partnership will guarantee inflow of additional investment into the power sector.

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Economy & Politics

Lagos Auditor-General calls for amendment of financial management law

The report submitted for auditing showed an improvement on previous years finances for the state.

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Lagos state Auditor General presents audited financials for 2019, calls for amendment to State Financial Management Law

The Lagos State Auditor-General, Mrs. Helen Deile, has presented the Audited Financial Statements for 2019 to the State Permanent Secretary and Accountant-General, Dr. Abiodun Muritala.

While making the presentation on Tuesday, Deile noted that the report submitted for audit did not only show an improvement on previous years finances for the state, but conformed with basic International Accounting Principles and recommendations by International Public Sector Accounting Standards (IPSAS).

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She noted that the statement, “represents the overall performance of the entire State” for 2019, and detailed the Financial Performance, Position, Cash flows as well as comparison of budget and the actual amount for the year.

Review of the state Public Finance Management Law

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Deile explained a need to review certain provisions of the Lagos state Public Finance Management Law as regards the timeline of submission of Financial Statements to the State Auditor-General by Ministries, Departments and Agencies (MDAs), which she said coincides with that of the State Treasury Office.

(READ MORE: Lagos to shut down Marine Beach bridge for emergency repairs)

This, she said, results in a tight timeline for the auditing of the financial statements by the Auditor-General.

She suggested that both the office of the Accountant General collaborate with the office of the Auditor-General to propose a review to the State House of Assembly for consideration and approval.

The Permanent Secretary/Accountant-General, Dr. Abiodun Muritala in his response, noted that his office would run with the suggestions of the Auditor-general.

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Muritala observed that the improvements recorded were a result of strict adherence to laid down rules and procedures, and promised that the State treasury office would not rest on its oars.

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Economy & Politics

Why 2020 Q1 GDP is not a surprise

If the Q1 2020 GDP looks too good to be true, it is because it really is. But Q2 results will be a better representative of our challenges

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Why 2020 Q1 GDP Is Not A Surprise

Owing to the novel Covid-19 pandemic, reduced demand in the oil market, and restricted international trade activities, the outlook of the nation’s Gross Domestic Product (GDP) had been expectedly negative.

The  International Monetary Fund  (IMF), for one, predicted that the  plunge in crude prices  could cause  GDP to  contract by 3.4% in 2020, a rate that is by far the highest in  at least  four decades.  The Minister of Finance Zainab Ahmed projected a far worse outcome of an 8% contraction.

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As such, when the National Bureau of Statistics on its website on Monday, noted that  the country’s  Gross domestic product (GDP) expanded  by  1.87% in the quarter from a year earlier,  many were ecstatic. While the growth, in real terms, represented a drop of 0.23% points compared to Q1 2019 and 0.68% points decline compared to Q4 2019, it has largely been perceived as positive.

For context, the median estimate of three economists in a Bloomberg survey for the quarter was for a 0.8% expansion.  However, just before we doff our hats to the seemingly positive growth rate (albeit comparative to projections), here are a few things to bear in mind:

It’s Still A Major Decline

Nigeria’s Q1 GDP of 1.87% reveals that there are indeed challenges that cannot be ignored. Beyond the effect of the pandemic, the oil price wars driven by Saudi Arabia & Russia, have increased the level of uncertainty in the oil market. While the growth rate for the quarter might not have been as bad as expected, the GDP still contracted from the fourth quarter. Also note that in its 2020 budget, the country had significantly cut the  benchmark price to  $25  per barrel without changing so much in terms of spending, making the nation susceptible to borrowing  even  more.

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(READ MORE: Nigerian economy going into recession, might contract by -8.9% – Finance Minister)

We Amped Up Oil Production

A core reason the country’s GDP growth  rate was higher than estimated  is that it witnessed a four-year rise in oil production. The country had increased its production after crude oil prices started crashing in the first quarter of 2020 as a result of the Covid-19 pandemic as well as the tension between the world’s biggest producers of the commodity. This was in order to curb the crash in income.

Output, consequently, rose to  2.07 million barrels a day, as  compared  to the 2 million in the fourth quarter and 1.99 million barrels in the first quarter of last year – an output that had not been attained since at least early 2016.

Why 2020 Q1 GDP Is Not A Surprise

Q2 will be worse

Let’s face it, the pandemic has taken its toll on the Nigerian economy and very little can be done to hide that. However, the impact of the pandemic has not yet been reflected in Q1 results. This is because the economic impact of the pandemic actually commenced in April. If the projections for Q1 were bad, Q2 will be worse – and there are many reasons for this.

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Top on the list is that the non-oil economy will likely not offer the solace we need. The statistics office explained that the slowdown reflects “the earliest effects of the disruption, particularly on the non-oil economy.”

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With the oil economy down, the non-oil economy had been expected to ease the burden. However, results in ICT and Trade, two main components of the non-oil economy performed below expectations. For one, Trade contracted by 2.82%. Nigeria’s trade sector ranks as the second-largest contributor to Nigeria’s GDP. Consequently, its underperformance has material implications on GDP growth. On the other hand, ICT attained a growth of only 7.65%.

With the typical perils of increasing inflation as well as the continued closure of the border, growth may remain farfetched for the sector. Of course, restrictions in international trade and travel are set to worsen the said outlook. Given the forgoing, there is no gainsaying the fact that bigger challenges will ensue from the second quarter of the year.

 

 

 

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