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Economy & Politics

FG to create “Special Instruments” as part of plans to formalize its borrowing from CBN

Minister of Finance revealed there are plans to convert loans from the CBN into tradeable securities. 

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FG runs N1.14 trillion budget deficit in three months , Nigeria cannot beat ECOWAS single currency deadline, here’s why , Nigeria considers request for debt relief as debt stock climbs

The Minister of Finance Dr. Zainab Ahmed revealed there are plans between her ministry and the central bank (CBN) to convert loans from the apex bank into tradeable securities.

This was disclosed in the question and answer session following the recent public presentation of the 2021 approved budget – breakdown and highlights by the Minister of Finance and DG Budget Office.

READ: FG discloses how it will finance N5.36 trillion budget deficit

She responded to a question about any plans to tap into CBN financing for the 2021 budget as no provision was made last year, yet about N2.8 trillion was borrowed as exclusively reported by Nairametrics.

FG to turn CBN loans into formal borrowing

According to Mrs. Ahmed, the government is working with the central bank to regularize the loans and will turn them into formal borrowings, suggesting that the over N2.8 trillion in Ways and Means extended loans could be repackaged and sold as bonds.

READ: Growing concern for Nigeria’s ballooning debt profile

“On CBN financing, we will not normally make a line provisioning for the financing. So we have domestic borrowing in the budget and that covers whatever remit of financing required to fund the national budget.”

She then went on to confirm that talks are ongoing with the central bank to turn their loans into formal borrowings and that there is a need between her ministry and the central bank to agree on the rates and the tenures and the cost of borrowing, all of which will be decided in 2021.

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READ: Customs revenue rises by N200 billion to hit N1.5 trillion in 2020

“We are working with the CBN to regularise the previous borrowing that have been made to turn them into formal borrowing and by the Nigerian economy and to this extent, the CBN and I (fiscal authorities) need to agree on the rates and the tenures and the cost of the borrowing, so we would be formally doing that in early 2021 on the previous borrowing that has been made, and also projected borrowings in 2021. So we will design special instruments that limits what is done in terms of domestic borrowing from the CBN.”

READ: New CBN guidelines ban MMOs, PSPs, Operators from receiving diaspora remittances

Nigeria’s budget deficit of N6.1 trillion part-funded by CBN

Nairametrics reported exclusively on Wednesday that the central banks borrowed N2.8 trillion from the central bank through a provision in the CBN Act called “Ways and Means” to help fund its budget deficit of about N6.1 trillion.

  • The budget deficit was created by massive revenue shortfalls created by a drop in oil prices and the covid-19 pandemic.
  • The result of the revenue shortfall and increased expenditure is a fiscal deficit of about N6.1 trillion as against the N4.6 trillion budgeted by the government.
  • To fund this, they borrowed N2 trillion from the domestic market and another N1.2 trillion from foreign markets.
  • The balance N2.8 trillion was obtained from the CBN.

READ: Nami eyes N4 trillion from extractive sector to meet President Buhari’s unusual target

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The government further plans to incur a budget deficit of N5.60trillion for 2021, representing 3.93% of GDP, and will likely tap CBN Ways and Means window again even though it claims it will fund the deficit via N2.34 trillion in domestic and foreign borrowing respectively and another N709 billion from multilateral sources.

READ: Over 1 million people took loans from banks below 20% interest rate in 1 year- CBN

CBN Special Bills

The central bank last December also announced the introduction of what it calls the “Nigeria Special Bills” in what it claims is an effort to deepen the financial markets.

  • The special bills provide banks with the opportunity to earn from trillions of naira of customer deposits sequestered by the CBN through CRR debits.
  • Some analysts who spoke to Nairametrics believe some of this money is also used to fund government expenditure via the CBN Ways and Means programme.

READ: Crypto market breaks past $1 trillion for the 1st time in history

Effects on the market

The introduction of “special bills” and “special instruments” by the central bank and the ministry of finance respectively will inject over N3 trillion into the fixed income market in 2021.

  • This will have huge implications on the capital markets in 2021 particularly equities that have benefited from the lack of fixed income securities which for years had posted returns higher than most dividend yields.
  • However, with yields at record lows, dividend yields appear to be a better investment for investors.
  • The Nigerian stock market was adjudged the best performing in the world with over 50% returns in 2020 and this was mostly driven by local institutional and retail investors who revved up liquidity in a market that has for years chosen fixed income securities over it.
  • More government bonds in 2021 could also crowd out the private sector which as of 2020 had only received N19 trillion in credit representing just 13% of GDP, one of the lowest among frontier markets counterparts in the world.

 

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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

    Insecurity: FG to implement town hall meetings to reach a national consensus

    The meetings are set to address the twin issues of insecurity and its concomitant effect on national unity and cohesion.

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    Insecurity: FG to implement town hall meetings to reach a national consensus

    The Federal Government announced the launch of town hall meetings to address the twin issues of insecurity and its concomitant effect on national unity and cohesion.

    This was disclosed by the Minister of Information, Lai Mohammed, at the Town Hall Meeting in Kaduna on Thursday, themed “Setting Benchmarks for Enhanced Security and National Unity in Nigeria.”

    What the Minister is saying

    “The correct starting point towards addressing these myriads of problems is the building of an “elite consensus” on the security, unity, indissolubility, and peaceful existence of Nigeria.

    “Such elite consensus had worked in the past. Can we make it work now and proffer solutions in order to stave off the threats to our unity as a nation?” he said.

    The Minister disclosed that the meetings are necessary to bring all critical stakeholders together to deliberate on the issues and possibly reach a consensus on the way forward.

    “We expect this Town Hall meeting to develop concrete, implementable resolutions because a lot of talks and postulations had taken place with little or no requisite outcome.”

    In case you missed it 

    • Former Vice President, Atiku Abubakar warned that the rising insecurity in Nigeria is a result of rising youth unemployment. He urged Nigeria to tackle out-of-school children cases, pay a monthly stipend to poorer families, incorporate youths who are above school age into massive public works programmes and others.
    • Senator Ali Ndume insisted that the Federal Government needs to increase its total military spending to be able to tackle the rising insecurity in Nigeria which has seen a number of school students in 2021 kidnapped by bandits.

    Continue Reading

    Business

    IMF lifts 2021 global GDP growth to 6%

    The group also warned that economic recoveries are diverging dangerously across and within countries.

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    Kristalina Georgieva, IMF boss hints at 'synchronized slowdown' in global growth , IMF: 40% of African countries can't pay back their debts , Nigeria worse off, posts grows lower than LIDC benchmark - IMF, Measures introduced by Nigeria to ensure transparent use of the $3.4b IMF loan

    The International Monetary Fund has lifted its global growth outlook to 6% in 2021 (0.5% point upgrade) and 4.4% in 2022 (0.2 percentage point upgrade), after an estimated historic contraction of -3.3% in 2020 due to the effects of the COVID-19 pandemic. This disclosure was made on the organisation’s website on Tuesday.

    The group also warned that economic recoveries are diverging dangerously across and within countries, as economies with slower vaccine rollout, more limited policy support, and more reliance on tourism do less well.

    READ: Corruption erodes the constituency for aid programmes and humanitarian relief – IMF

    What the IMF is saying

    “The upgrades in global growth for 2021 and 2022 are mainly due to upgrades for advanced economies, particularly to a sizeable upgrade for the United States (1.3 percentage points) that is expected to grow at 6.4 percent this year.

    This makes the United States the only large economy projected to surpass the level of GDP it was forecast to have in 2022 in the absence of this pandemic.

    China is projected to grow this year at 8.4 percent. While China’s economy had already returned to pre-pandemic GDP in 2020, many other countries are not expected to do so until 2023.”

    READ: Nigeria needs structural and monetary policy reforms to unlock potential – IMF

    On divergent recoveries 

    The IMF stated that divergent recovery paths are likely to create wider gaps in living standards across countries compared to pre-pandemic expectations.

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    “The average annual loss in per capita GDP over 2020–24, relative to pre-pandemic forecasts, is projected to be 5.7 percent in low-income countries and 4.7 percent in emerging markets, while in advanced economies the losses are expected to be smaller at 2.3 percent,” they said.

    “Faster progress with vaccinations can uplift the forecast, while a more prolonged pandemic with virus variants that evade vaccines can lead to a sharp downgrade. Multispeed recoveries could pose financial risks if interest rates in the United States rise further in unexpected ways.

    For Africa, IMF forecasts economic growth of 3.4% in 2021 and 4% by 2022, Nigeria is expected to grow by 2.5% in 2021 and 2.3% by 2022, while South Africa is projected to hit growths of 3.1% and 2.0% for the respective years in focus.

    READ: The 4th industrial revolution and the birth of a new international monetary system

    In case you missed it 

    The International Monetary Fund (IMF)  identified some factors that hamper the economic recovery of low-income countries from the devastating impact of the coronavirus pandemic, factors including access to vaccines, limited policy space to respond to the crisis, the lack of means for extra spending, pre-existing vulnerabilities such as high levels of public debt in many low-income countries and sometimes weak, negative, total factor productivity performance in some low-income countries. These factors continue to act as a drag on growth.

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    Continue Reading

      





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