Debt Securities
SEC says state governments have borrowed N900 billion from capital market
The SEC has disclosed that state governments have borrowed at least N900 billion from the Nigerian capital market in the last four decades.
The Securities and Exchange Commission (SEC), has revealed that state governments in the country have borrowed at least N900 billion from the Nigerian capital market since 1978.
According to a report from Vanguard, this disclosure was made by the Director-General (DG) of SEC, Mr Lamido Yuguda, at a webinar which was organized by the Nigerian Stock Exchange (NSE) on ways sub-nationals can raise funds through the sale of state-owned enterprises.
READ: Nigeria’s total public debt stock increased by N2.381 trillion in 3 months
The SEC DG who was represented by the Executive Commissioner in charge of Legal and Enforcement, Mr. Reginald Karawusa, revealed that this amount was raised from the capital market through the issuance of debt since 1978.
While speaking on ‘Privatization in Nigeria and the Outlook for Sub-National Economic Development’, the theme of an event organized in partnership with the Nigeria Governors’ Forum (NGF) and the Nigerian Investment Promotion Council (NIPC), he said a huge part of these funds were deployed to financing capital projects and some critical infrastructures for the development of their various states.
READ: FG to disburse N97.3 billion to tech innovators, agric enterprises
He said, “Sub-national issuers in Nigeria have been able to access the debt capital market over the years since 1978, state governments in Nigeria have raised close to N900 billion through debt issuances. A significant part of these funds was deployed to finance capital projects across the country.’’
It must be noted that State governments raise long-term funds from the capital market through bond issuance. In the past, many states including Lagos, Ekiti, Delta, Edo State, Yobe, Osun among others, have raised funds from the market which were basically used for the execution of projects and development of infrastructures.
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The SEC boss, however, noted that a drop in allocation from the Federal Government due to significant decline in oil revenue, low level of internally generated revenue and so on, has negatively affected the ability of most of these states to pay salaries after servicing its debts. This has also affected the states’ ability to continue to borrow in a sustainable manner.
On the privatization of state-owned enterprises, Yuguda said, “Several enterprises are still owned and controlled by the government, both at the state and federal levels. A number of these entities have the capacities to generate cash flows and corporate profitability.’’
READ: Unclaimed dividend stands at N158.44 billion, over N100 billion from unclaimed shares
He noted that privatization is a way for governments to unlock economic potentials inherent in these state-owned enterprises.
It must also be noted that raising these funds from the capital market which are needed badly for development, will be good for transparency, meet the financial obligation and good for funding of capital projects for development. Such improved infrastructure can help increase the internally generated revenue.
Debt Securities
FEC approves new Debt Management strategy for 2020–2023
The FEC has approved a new Medium Term Debt Management Strategy (MTDS) for Nigeria.
The Federal Government has indicated it is looking inward as far as debt is concerned.
This point was unscored in the approval of the medium term Debt Management Strategy for the period 2020-2023 as disclosed by the Debt Management Office (DMO) in a statement issued on Wednesday after the FEC held its meeting in Abuja.
The MTDS policy as a document tries to articulate the debt mix of the government considering the cost and risk trade-offs that best suit the country’s broader macroeconomic and public debt management
READ: Investors scramble for DMO sovereign sukuk as it records 446% oversubscription
It stated, “The MTDS, 2020-2023 has been prepared by the DMO, in collaboration with Federal Ministry of Finance, Budget and National Planning and the Central Bank of Nigeria.
“Other collaborating stakeholders are the Budget Office of the Federation, National Bureau of Statistics and the Office of the Accountant-General of the Federation.”
READ: Nigeria’s high recurrent costs, low revenue and escalating debt numbers
What has changed
With the new strategy, a larger proportion of new borrowing will be from domestic sources using long-term instruments while for External Borrowing, concessional funding from multilateral and bilateral sources will be prioritised.
Also, the target of fiscal sustainability has been increased from 25% (MTDS, 2016-2019) to 40% in the new strategy.
In simple language, the government wants to increase borrowing from 25% of GDP to 40%. While this will provide investment outlets to investors and mop up cash and calm inflation rate, it will also put a lot of pressure on the domestic debt market, interest rate and liquidity.
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The target, according to DMO, was increased to accommodate new borrowings to fund Budget Deficits and other obligations of Government; Promissory Notes to be issued to settle Government Arrears; and, the Ways and Means Advance at the Central Bank of Nigeria.
DMO added that the strategy would sustain the issuance of longer-tenored instruments with tenors of 10 years and above, in order to effectively manage Refinancing Risks.
Why it matters
The new debt policy has to be reworked in light of the current global pandemic, reduced revenue from shock and volatility in the oil market. The public works in the budget will be funded, indicating there is a low likelihood of project abandonment.
Government appetite for debt seems to have found some cover or justification from the assertion by DMO that Nigeria is still well below the threshold 55% for countries in Nigeria’s peer group, but massing debt could constraint government flexibility in public finance in the coming years and reduce monetary policy tool available to CBN.
Debt Securities
Ecobank Nigeria to launch $300 million senior notes on International Debt Market
Ecobank Nigeria has announced that it is seeking to raise $300 million from the international debt capital market through the issuance of senior notes.
