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Economy & Politics

Nigeria records debt service to revenue ratio of 99% in first quarter of 2020.

This suggests almost all the revenue generated was used to meet debt service obligations.  

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The rising cost of Nigeria’s debt profile breached a new milestone with the country’s debt service as a percentage of revenue rising to 99% in the first quarter of 2020. This is contained  in the Medium-Term Expenditure Framework and Fiscal Strategy (MTEF/FSP) report recently released by the Federal Ministry of Finance, Budget, and National Planning 

A cursory review of the data obtained from the MTEF/FSP report shows that in Q1 2020, Nigeria incurred a total sum of N943.12 billion in debt service while the federal government retained revenue was put at N950.56 billion. This implies Nigeria’s debt service to revenue is estimated to be 99% during the period.  

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This is the highest on record and it suggests almost all the revenue generated from both oil and non-oil sources was used to meet debt service obligations.  

Debt service, recurrent expenditure, and Revenue Breakdown  

Nigeria like the rest of the world has been battling with the COVID-19 pandemic and was expected to suffer a significant revenue shortfall. However, the data suggests the government may have experienced a significant drop in revenues before the lockdown induced economic downturn indicating that things may indeed be worse than projected.  

According to the data, the country earned N950.5 billion in revenue compared to a prorated budget of N1.9 trillion representing a whopping shortfall of 52%.  Oil revenue was N464 million representing a shortfall of 30% when compared to budget while non-oil revenue was N269 billion representing a shortfall of 40%. 

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READ ALSO: Nigeria’s fiscal quandry: A revenue problem or a debt problem?

Source: MTEF Framework2020-2022.

Despite the revenue shortfalls recorded, government recurrent expenditure (debt and non-debt) remained in line with budgetary expectations. According to the data, debt service for the first quarter of the year rose to N943.1 billion divided into domestic debt (N594.23 billion), Foreign Debt (N129.51), and Interest on Ways and Means (219.38 billion) respectively.   

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Recurrent non-debt expenditure was N1.1 trillion, largely in line with budget expectations a common feature over the last two decades. However,  capital expenditure was N139.7 billion, a whopping 71.3% off target as much needed capital expenditure suffered yet another decline.

Is Nigeria “Bankrupt”? 

The continued depletion in Nigeria’s revenue continues to raise questions around the solvency of the Nigerian economy. Generally, debt sustainability can be explained using either debt to GDP or debt service to revenue ratio.  

With Nigeria’s total public debt below 30% of GDP, the country’s debt burden appears to be relatively light compared with many other countries. Meanwhile, debt-to-GDP is not regarded as the best indicator of debt sustainability, especially in a country where tax-to-GDP is low. For Nigeria, a better indicator of debt sustainability is the debt service-to-revenue ratio, which in Nigeria has in recent years risen to worrying levels, and now 99% as at Q1 2020 

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In 2019, former CBN Governor, Sanusi Lamido, declared that Nigeria is “bankrupt and the country is heading to bankruptcy”. This statement credited to the former Emir of Kano State just after the African Development Bank (AfBD) revealed that Nigeria spends more than 50% of its revenue on debt servicing, and this is worrisome.  

READ: Evidence that Sanusi is right about Nigeria ‘going bankrupt’ 

Gloomy Outlook

With the economy likely on the path to a recession, government revenues particularly non-oil revenues could remain depressed this quarter and the next. This means the government will still need to rely on debt borrowing to fund its operations. Just recently, the national assembly approved another $5.5 billion in debt borrowing for the Federal Government piling more pressure on Nigeria’s debt service to revenue ratio.

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Though the latest rise in crude oil prices presents a silver lining, Nigeria still faces a cut in its crude oil output and will earn less oil revenue than was projected. The government has also cut its crude oil benchmark as contained in the MTEF.

“Crude oil production volume has been revised downwards from the 2.18 million barrels per day (mbpd) in the 2020 Budget to 1.9 mbpd (out of which 400kbpd is condensate). This reflects recent oil output cut by the OPEC and its allies to stabilize the world oil market. which put Nigeria’s quota at 1.48mbpd, excluding condensates. Oil production averaged 2.1mbpd in the first two months of the year before the collapse in demand and price as most economies went into lockdown.

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READ ALSO: LCCI condemns Senate over Buhari’s $22.7 billion loan approval

Crude oil producers are experiencing great difficulty in selling crude cargoes, resulting in heavy price discounting to attract buyers. Nevertheless, the lower production volume has enabled the NNPC to shut in some very high cost oil wells, and hence lowered the average production cost, from about US$33 to under US$28 per barrel.” MTEF

These challenges also suggest the government may have to rely on funding from the CBN to meet its revenue shortfalls. The government has in the past relied on the CBN Ways and Means to fund recurrent expenditure as it repays with future oil inflows.

The Bottomline: Revenue outlook still muted  

According to the Joint World Bank-IMF Debt Sustainability Framework for Low-Income Countries released in 2020, a country’s debt service to revenue threshold should not exceed 23%. 

Meanwhile, Nigeria currently stays around 99%. This implies out of every 100 Naira that Nigerian earned in Q1 2020, 99 Naira was spent on servicing debts. 

This is an unsustainable model for Nigeria and cannot continue for too long. At some point, the government will have to increase its revenues or face further spending cuts.

 

 

 

 

 

Patricia

Nairametrics Research team tracks, collates, maintains and manages a rich database of macro-economic and micro-economic data from Nigeria and Africa. Our analysts share some of the data collated on Nairametrics, using formats such as docs, tables and charts etc. The team also publishes research based analysis as articles on a regular basis.

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Economy & Politics

FG disburses N349.5m in Conditional Cash transfer to poor households in Kaduna 

The disbursement was done under the federal government’s Conditional Cash Transfer.

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The Federal Government has successfully disbursed a total of N349.5 million to 34,946 poor and vulnerable households in Kaduna State, under the conditional cash transfer programme. 

According to the Head of Cash Transfer Unit in the State, Hajiya Hauwa Abdulrazaq, the disbursement lasted a period of 10 days, from July 1 to July 10.  

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Speaking in an interview with the News Agency of Nigeria (NAN) on Sunday, Abdulrazaq explained that the benefiting households were drawn from 9 local government areas in the state – 4,470 from Kajuru; 8,032 in Birnin Gwari; 1,963 in Kauru; 1,406 in Sanga, 4,380 in Lere2,021 in Kachia; 5,478 in Ikara; 2,784 in Chikun, and 4,412 in Kubau LGAs.  

She noted that the disbursement was done under the federal government’s Conditional Cash Transfer, a Households Uplifting Programme targeting poorest of the poor households in the country, and that each of the households received N10,000 each, being payment for the months of May and June at N5,000 per month. 

“The households uplifting programme is one of the national social investment programmes which implementation began in September 2016,” she said. 

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NAN reports that the programme began in 2017 in Kaduna state with about 10,000 beneficiaries, but expanded to 22,380 in April 2020.  

In May, a total of 12,566 new beneficiaries were added summing the figures to 34,956 beneficiaries in the state.   

The state government had also commenced the process of capturing poor and vulnerable households into the social register in the remaining 14 LGAs, from which beneficiaries of the cash transfer would be extracted in subsequent months.  

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Patricia
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Economy & Politics

Buhari sheds light on why Magu was suspended

Shehu’s statement sheds more light on Magu’s suspension.

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Buhari says large proportions of new COVID-19 infections now occur in communities

Following the suspension of the Acting Chairman of the Economic and Financial Crimes Commission (EFFC), the Presidency has revealed the grounds for his suspension through the Senior Special Assistant on Media and Publicity to the President, Garba Shehu in a statement on Saturday evening.

He revealed that a preliminary review was conducted on allegations leveled against Magu and other EFFC staff that justified reasons for an investigation on his activities, and a panel was constituted “in compliance with the extant laws governing the convening of such a body,” adding that in cases of allegations against the head of the EFCC, it was proper procedure for the Chair to step down to enable a fair investigation.

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“As is the proper procedure, when allegations are made against the Chief Executive of an institution, and in this case an institution that ought to be seen as beyond reproach, the Chief Executive has to step down from his post and allow for a transparent & unhindered investigation” he said.

The EFCC does not revolve around the personality of an individual, and as such cannot be seen through the prism of any individual.

“Therefore, the suspension of Mr. Ibrahim Magu, allows the institution to continue carrying out its mandate without the cloud of investigation hanging over its head.”

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He added that the EFCC is committed to fighting economic and financial crimes in Nigeria, and Magu would have the opportunity to defend himself against allegations leveled against him as stipulated by the Nigerian constitution where “every citizen is presumed and remains innocent until proven guilty.”

He said the war against corruption was not a static event, but a continuous process that required transparency and accountability, where people must be held to account for their activities so as to improve Nigeria’s democratic institutions.

“Those who see Mr. Magu’s investigation, as a signal that the fight against corruption is failing, have unfortunately, missed the boat.

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“There is no better indication that the fight is real and active than the will to investigate allegations in an open and transparent manner against those who have been charged to be custodians of this very system,” he said.

“Under this President and Government, this is our mantra and guiding principle. There are no sacred cows, and for those who think they have a halo over their heads, their days are also numbered,” Shehu said.

He also said Magu was not immune to investigations regardless of the “obvious embarrassment that potential acts of wrongdoing by him” may have caused the Nigerian Government, however, the government maintains its fight against corruption.

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Ibrahim Magu was suspended as EFCC Acting Chairman this week after facing a preliminary panel at the Aso Villa and was replaced by Mohammed Umar.

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Patricia
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Economy & Politics

Magu probe: New facts suggest case is about re-looting of previously stolen funds

The report exposed acts of corruption and money laundering against some EFCC officials, including Magu.

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Ibrahim Magu, Buhari appoints new Ag. Chairman of EFCC, gives reason for Magu's suspension

There appear to be more troubles for the suspended acting Chairman of the Economic and Financial Crimes Commission (EFCC), Ibrahim Magu, as some new cases bordering on alleged re-looting of recovered funds and bribery may be lined up against him.

Some new facts also emerged on how accumulated interest rates on the recovered N550 billion by the EFCC in the period under review were allegedly re-looted. The suspended EFCC boss is expected to disclose the whereabouts of the missing interest funds running into millions of naira.

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The final report of the Presidential Committee on Audit of Recovered Assets (PCARA) that covered the period of May 29, 2015, to November 22, 2018, had also confirmed the concerns of the public about the contradiction in the recovered funds by Magu. These contradictions include;

For Foreign currency recoveries, EFCC reported a total naira equivalent of N46,038,882,509.87, while the naira equivalent of the foreign currency lodgments was N37,533,764,195.66, representing a shortfall of N8,505,118,314.21.’’

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“These inconsistencies cast serious doubt on the accuracy of figures submitted by the EFCC. It is the committee’s view that the EFCC cannot be said to have fully accounted for cash recoveries made by it.’’

“While EFCC reported total Naira recoveries of N504,154,184,744.04, the actual bank lodgments were N543,511,792,863.47. These discrepancies mean that EFCC’s actual lodgment exceeded its reported recoveries by N39,357,608,119.43.’

READ ALSO: Gold down over increased investor confidence in economic recovery

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It should be noted that the about N39 billion discrepancy excludes the missing accrued interest.

With all these, the report suggests that there is an apparent case of manipulation of data in a very brazen and unprofessional manner and has greatly eroded public confidence in the anti-corruption efforts.

The PCARA revealed how the investigative reports on EFCC’s activities by the Nigeria Financial Intelligence Unit (NFIU) exposed acts of corruption and money laundering against some EFCC officials, including Magu.

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The NFIU report shows that the Acting Chairman has been using different sources to siphon money from the EFCC, and in some cases collecting bribes from suspects.

According to News Agency of Nigeria, the report has shown that a particular Bureau de Change, owned by Ahmed Ibrahim Shanono linked to the Acting Chairman based in Kaduna has more than 158 accounts and has been receiving huge sums of money.

The PCARA report also claimed that Magu was linked to a N28m payment to Falana who is alleged to be his close associate and ally.

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READ ALSO: Air Peace’s Onyema saga: EFCC seizes passport, as Northern Youths plan rally at US embassy

Background

According to reports from the News Agency of Nigeria (NAN), the former EFCC boss is being interrogated by the Rtd, Justice Ayo Salami led Presidential Probe Panel over allegations bordering on mismanagement and lack of transparency in managing recovered assets by EFCC.

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A final report of the Presidential Investigation Committee on the Federal Government Recovered Assets and Finances by EFCC from May 2015 to May 2020 had seriously indicted and implicated Magu on various allegations levelled against him.

The terms of reference for the investigative committee were

’Investigate, verify and review the recommendations of the Presidential Committee on Audit of Recovered Assets as it relates to the EFCC, with a view to ascertaining the complicity or otherwise of the Ag. Chairman, Ibrahim Magu, in the mismanagement of the assets recovered by the Commission.’’

‘’Identify Avenues through which the recovered assets are dissipated and seized, recovered, forfeited (Interim and Final) assets are valued, managed, disposed and/or mismanaged with a view to ascertaining compliance or otherwise with extant laws, regulations, processes and procedures.’’

‘’Review the existing procedures on the Management of the seized, recovered and Forfeited assets (interim and final) and proffer Standard Operational Procedures for the management of seized, recovered and forfeited assets.’’

‘’Determine whether assets recovered during his tenure, whether locally in Nigeria or abroad, are being kept safely in a manner as to preserve their original value and determine: –

  • Whether all the assets could be properly accounted for by the Ag. Chairman.
  • To confirm if any of the assets have been diverted to the benefit of the Ag. Chairman, his family, relation, friends or favoured staff.
  • To recover any such diverted assets and return back to the EFCC or appropriate government agency.

READ MORE: Nigeria’s external reserves up by 7% in 21 days, currency speculators to lose over N10 billion 

The committee was also to probe and report on corruption and money laundering allegations based on petitions and intelligence reports, involving Magu and Bureau De Change operators as well as some of his associates.

It was to audit the Assets and Finances of the EFCC as a legal entity from 2015-2020, with a view to establishing compliance or otherwise with procurement procedures of the EFCC in line with the provisions of the Procurement Act.

Patricia
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