The global economy is most likely to expand by 4% in 2021, with the immediate policy priorities focused on controlling the spread of coronavirus and ensuring rapid and widespread vaccine deployment as well as strategic investments.
This was disclosed in the Global Economic Prospects January 2021 report released by the World Bank.
According to the report…
- The global economy is expected to expand 4% in 2021, assuming an initial COVID-19 vaccine rollout becomes widespread throughout the year.
- A recovery, however, will likely be subdued, unless policymakers move decisively to tame the pandemic and implement investment-enhancing reforms.
- Although the global economy is growing again after a 4.3% contraction in 2020, the pandemic has caused a heavy toll of deaths and illness, plunged millions into poverty, and may depress economic activity and incomes for a prolonged period.
- Top near-term policy priorities are controlling the spread of COVID-19 and ensuring rapid and widespread vaccine deployment. To support economic recovery, authorities also need to facilitate a re-investment cycle aimed at sustainable growth that is less dependent on government debt.
What they are saying
According to World Bank Group President, David Malpass,
- “While the global economy appears to have entered a subdued recovery, policymakers face formidable challenges – in public health, debt management, budget policies, central banking and structural reforms – as they try to ensure that this still fragile global recovery gains traction and sets a foundation for robust growth.
- “To overcome the impacts of the pandemic and counter the investment headwind, there needs to be a major push to improve business environments, increase labour and product market flexibility, and strengthen transparency and governance.”
According to Vice President and World Bank Group Chief Economist, Carmen Reinhart
- “Financial fragilities in many of these countries, as the growth shock impacts vulnerable household and business balance sheets, will also need to be addressed.”
According to Ayhan Kose, World Bank Acting Vice President for Equitable Growth and Financial Institutions:
- “The pandemic has greatly exacerbated debt risks in emerging market and developing economies; weak growth prospects will likely further increase debt burdens and erode borrowers’ ability to service debt.
- “The global community needs to act rapidly and forcefully to make sure the recent debt accumulation does not end with a string of debt crises. The developing world cannot afford another lost decade.”
What you should know
- In Sub-Saharan Africa, economic activity is quite on course and is expected to rise by 2.7% in 2021.
- With the rise in infections and delay in the rollout of the vaccines, the global economic expansion could be limited to rise only 1.6% in 2021.
- But with successful pandemic control and a faster vaccination process, global growth could accelerate to nearly 5%.
- With the resurgence of the infections in some advanced economies, their recoveries might be slow and challenging. For example, U.S. GDP is forecast to expand by 3.5% in 2021, after an estimated 3.6% contraction in 2020. Japan is expected to grow by 2.5% in 2021 after shrinkage by 5.3% in 2020. Europe is to grow by 3.6% in 2021, following a dip of 7.4% in 2020. China’s economy is expected to expand by 7.9% in 2021 following 2% growth in 2020.
Nigerian government spends equivalent of 83% of revenue to service debt in 2020
The Federal Government of Nigeria achieved a debt service to revenue ratio of 83% in 2020.
The Federal Government of Nigeria achieved a debt service to revenue ratio of 83% in 2020. This is according to the information contained in the budget implementation report of the government for the year ended December 2020.
According to the data seen by Nairametrics, total revenue earned in 2020 was N3.93 trillion representing a 27% drop from the target revenues of N5.365 trillion. However, debt service for the year was a sum of N3.26 trillion or 82.9% of revenue.
Nigeria’s debt service cost of N3.26 trillion has now dwarfed the N1.7 trillion spent on capital expenditure of N1.7 trillion incurred in 2020. This is also the highest debt service paid by the Federal Government since we started tracking this data in 2009.
The total public debt (External and Domestic) balance carried by Nigeria as of September 2020 stood at N32.22 trillion ($84.57 billion). Included in the total debt is a domestic debt of about N15.8 trillion.
What this means: Nigeria’s debt to GDP ratio is estimated at about 22%, one of the lowest in the world and much below what is obtainable in most emerging markets.
- However, the challenge has always been the debt service to revenue ratio, a metric that reveals whether the government is generating enough revenues to pay down its debts as they mature.
- Since the first recession experienced in 2016, Nigeria has struggled with higher debt service to revenue ratio as revenues slid in direct correlation with the fall in oil prices.
- Nigeria’s government spent about N2.45 trillion in debt service in 2019 out of total revenue of N4.1 trillion or 59.6% debt service to revenue ratio.
- At 83%, 2020 ranks as the highest debt service to revenue ratio we have incurred. Before now it was 2017 with 61.6%.
Breakdown of what debts were serviced
The following amount was spent on debt service during the year
- To service domestic debt, the government spent N1.755 trillion in 2020 as against a budget of N1.87 trillion.
- For foreign debts, a sum of N553 billion was spent against a target budget of N805.47 billion. The drop here is likely a result of lower interest rates on foreign borrowing as well as very limited borrowing from the foreign debt market during the year.
- The government only contributed N4.58 billion into its sinking fund instead of the budgeted N272.9 billion.
- The sinking fund is required to set aside funds that will be used to pay down on other loans such as bonds when they mature in the future.
- Finally, a sum of N912.57 trillion was spent on servicing CBN’s loans, granted via its Ways and Means provisions.
- Nairametrics reported last week that a total sum of N2.8 trillion was extended by the CBN to the FG as Ways and Means.
What happens next: In 2021, the government projects a debt service of N3.1 trillion against revenue of N6.6 trillion or a debt service to revenue ratio of 46.9%.
- The government plans to spend N4.3 trillion on capital expenditure during the year.
FG receives N144 billion in dividends from NLNG in 2020
NLNG, paid the Federal Government a dividend of N188 billion in the fiscal year ended December 2020.
Nigeria Liquified Natural Gas Company, NLNG, paid the Federal Government a dividend of N144 billion in the fiscal year ended December 2020.
This is according to the information contained in the Ministry of Finance Budget implementation report for the period of January 2020 to December 2020 and presented by the Minister for Finance Dr. Zainab Ahmed.
During the year, the Federal Government budgeted a sum of N80.3 billion as its share of dividends from NLNG, however, the actual sum received as its share was N144 billion, N63.2 billion more or 79% higher than projected.
The year 2020 was a difficult year for the government as the fall in crude oil prices and the economic shutdown that was triggered by the Covid-19 Pandemic dented projections and ravaged revenues.
NLNG Dividend Bliss
The dividend received from NLNG was a major bright spot in the government’s revenue performance for the year.
- During the year, the government projected revenue of N5.36 trillion but only received N3.9 trillion in revenues representing a shortfall of N1.4 trillion or 27% for the year.
- The huge dividend windfall received in 2020 is a stark contrast from 2017 when Nigeria just exited a recession triggered by falling oil prices and a sharp exchange rate devaluation.
- In that year, the Federal Government’s share of dividends from Nigeria Liquefied Natural Gas (NLNG) dropped by as much as $687 million, from $1.04 billion in 2015 to $365 million in 2016, a 65% drop.
- The N144 billion received in 2020 topped the amount received from signature bonuses only N78.2 billion and complimented the N192 billion received by VAT.
- It is the most effective form of revenue generation for the government.
Back in July Nairametrics reported that the House of Representatives planned to investigate the alleged illegal withdrawal of $1.05 billion from the NLNG account by NNPC without its knowledge and appropriation.
- They had accused the NNPC of illegally tampering with the funds at the NLNG dividends account to the tune of 1.05 billion dollars thereby violating the nation’s appropriation law.
- NLNG is a company jointly owned by Nigerian owned NNPC(49%), Shell (25.6%), Total (15%), and ENI (10.4%).
- The company is located in Bonny Island and has six trains with a total capacity to process 22 million tonnes of LNG a year and as much as 5 million tonnes of natural gas liquids.
- NLNG currently accounts for about 7% of the total LNG supply in the world. Nigeria is ranked as the 4th exporter of Natural Gas in the world.
Upshots: The FG is targeting a revenue of N208 billion from NLNG as dividends in 2021. If this materializes, it will be a significant payout in dividend (in naira terms) competing with the N238.4 billion expected from VAT.
- Important to note that the recent devaluation of the naira will increase the naira value of dividends and other government revenue, as it did in 2020.
- The government also targets N6.6 trillion in revenue for the period under review.
Updated: An earlier version of this article captured the dividend as N188 billion instead of N144 billion. It has now been corrected.
Uganda Elections: Museveni re-elected for 6th term with 58.6% of the votes
Uganda’s President Museveni has won a 6th term in office as the opposition alleges wide-scale rigging.
The President of Uganda, Yoweri Museveni, has been re-elected as President, gathering 5.85 million votes compared to 3.48 million votes by main opposition leader, Robert Kyagulanyi, a.k.a Bobi Wine.
According to Reuters, this victory represents 58.6% of the vote cast while Bobi Wine got 34.8%
Bobi Wine announced that the election results show this is the most fraudulent election in the history of Uganda and urged his followers to reject the result.
What you should know
- Yoweri Museveni, aged 76, has been President of the East African nation since 1986.
- Bobi Wine claimed via his official Twitter handle that military men jumped over his fence and took control of his home yesterday.