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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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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.

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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.

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

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“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.

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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.

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  • 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.

 

 

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.

3 Comments

3 Comments

  1. Concerned citizen

    January 14, 2021 at 4:11 pm

    Where does the CBN get money from to loan to the FG? This is all delaying the inevitable. Buy bitcoin and protect your wealth from the incoming fiat financial collapse. Lebanon, Iran, Venezuela, Zimbabwe, Sudan, Argentina have had their currencies lose tremendous purchasing power in the past decade; Lebanon was just last year. Nigeria could be next.

  2. Ugochukwu

    January 15, 2021 at 10:42 am

    This is just like American mortgage backed securities. FG is creating money out of thin air enriching themselves and families.

  3. Anonymous

    January 15, 2021 at 10:44 am

    Bitcoin is also a bubble waiting to burst.

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Economy & Politics

FG says Excess Crude Account balance now stands at $72.4 million

The Federal Ministry of Finance has told the NEC that the Excess Crude Account (ECA) now stands at $72.4 million as at January 20, 2021.

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The Federal Government has announced that Nigeria’s Excess Crude Account (ECA) balance as at 20th January 2021 is $72,411,197.80.

This was disclosed by the Minister of Finance, Budget and National Planning, Zainab Ahmed at the first National Economic Council meeting of the year presided over by Vice President Yemi Osinbajo, SAN, with State Governors, Federal Capital Territory Minister, Central Bank Governor and other senior government officials in attendance.

READ: Nigeria’s growing current account deficit fans devaluation flames 

The FG said, “the ECA balance as at 20th January, 2021, $72,411,197.80; Stabilization Account, balance as at 19th January, 2021, N28, 800, 711,295.37; Natural Resources Development Fund Account, balance as at 19th January 2021, N95, 830,729,470.82.”

READ: Nigerians spend $9.01 billion on foreign travels in 2019 

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What you should know

  • In August 2015, during the early days of the Buhari administration, the ECA stood at $2.2 billion. It was $3.6 billion in February 2014, one of the highest balances on record.
  • According to the Central Bank of Nigeria’s annual report for 2018, Nigeria’s excess crude account fell from $2.45 billion in 2017 to $480 million as of December 2018.
  • In 2019, Nairametrics reported Nigeria’s Excess Crude Account had dropped to $480 million. This is as controversy continued to trail the $1 billion military spendings which was withdrawn from Nigeria’s Excess Crude Account.
  • Nairametrics reported in July 2020 that the  ECA had fallen by about 98% within the last 5 years to $72 million.
  • Nigeria has two Sovereign Wealth Funds: the Excess Crude Account and the Nigeria Sovereign Investment Authority (NSIA). Note that these two are funded by the savings earned when oil prices are at their peak.

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Economy & Politics

We look forward to a Biden presidency with great hope and optimism – Buhari

President Buhari has expressed optimism in Nigeria’s relations with a Joe Biden administration.

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Biden's election is a reminder that democracy is the best form of government - Buhari

President Muhammadu Buhari announced that Nigeria looks forward to the Presidency of Joe Biden with great hope and optimism for the strengthening of existing cordial relationships.

This was disclosed by an aide to the President, Garba Shehu after Joe Biden was inaugurated as the 46th president of the United States on Wednesday.

President Muhammadu Buhari warmly welcomes the inauguration of Vice President Joe Biden and Kamala Harris as President and Vice President of the United States of America on Wednesday, expressing hope that their presidency will mark a strong point of cooperation and support for Nigeria as well as the African continent,” Shehu said.

President Buhari congratulated the United States on a successful transition, citing it as an important historical inflection point for democracy as a system of government and for the global community as a whole.

Buhari added that Nigeria looks forward to working with Biden in areas of terrorism, poverty, climate change, and others.

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“We look forward to the Biden presidency with great hope and optimism for the strengthening of existing cordial relationships, working together to tackle global terrorism, climate change, poverty and improvement of economic ties and expansion of trade,” he said.

What you should know 

  • After the election results were released in November 2018, Buhari said Biden’s election is a reminder that democracy is the best form of government.
  • “In a democracy, the most powerful group are not the politicians, but voters who can decide the fate of the politicians at the polling booth. The main fascination of democracy is the freedom of choice and the supremacy of the will of the people,” Buhari said.
  • Nairametrics reported yesterday that Joe Biden had been sworn in as the 46th President of the United States.
  • Dapo-Thomas Opeoluwa, a Global Markets analyst and an Energy trader said Nigeria’s Oil, would be dependent on the future outlook of the oil market and Biden’s policies, as it would be interesting to see if Biden would allow OPEC to seize market share from American oil.

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Economy & Politics

Productivity-enhancing reforms are required for quick economic recovery – World Bank

Productivity-enhancing structural reforms key to quick economic recovery.

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The World Bank has revealed that a slow recovery of the global economy is not an inevitability and can be avoided through productivity-enhancing structural reforms.

This is contained in the Bank’s flagship report – Global Economic Prospects.

The Bank believes structural reforms are capable of offsetting the pandemic’s scarring effects and lay the foundations for higher long-run growth. It agrees that the global economy appears to be emerging from one of its deepest recessions and beginning a subdued recovery, beyond the short term economic outlook, following the devastating health and economic crisis caused by COVID-19.

According to the report, 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 and development.

Highlights

  • Growth in Nigeria is expected to resume at 1.1% in 2021 – markedly weaker than previous projections – and edge up to 1.8% in 2022, as the economy faces severe challenges.
  • Investment is projected to shrink again this year in more than a quarter of economies – primarily in Sub-Saharan Africa (SSA), where investment gaps were already large prior to the pandemic.
  • Growth in Sub-Saharan Africa is expected to rebound only moderately to 2.7% in 2021 – 0.4% point weaker than previously projected, before firming to 3.3% in 2022.
  • Relative to advanced economies, disruptions to schooling have, on average, been more prolonged in emerging market and developing economies (EMDEs), including in low-income countries.

What the World Bank is saying

  • “In the longer run, a concerted push toward productivity-enhancing structural reforms will be required to offset the pandemic’s scarring effects.
  • “The intended productivity-enhancing structural reforms encompass promoting education, effective public investment, sectoral reallocation, and improved governance. Investment in green infrastructure projects can provide further support to sustainable long-run growth while also contributing to climate change mitigation.”

Are we ready to adjust structurally?

The World Bank has identified key areas that could trigger quick economic recovery. A close look at events in the country appears to suggest that we may be far from ready in terms of adjusting structurally.

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A cursory look at the structural adjustment areas suggested by the Bank indicates that in Nigeria, for example, and maybe elsewhere, the single most important factor is improved governance.

All other factors appear to be contingent on this, as the Bank admits that improved governance and reduced corruption can lay the foundations for higher long-run growth. Policymakers and politicians in the country are therefore advised to pay close attention to activities geared towards reduced corruption and improved governance.

Another key area is public investment. Even though most public enterprises and related establishments are usually plagued with corporate governance problems, there are several ways by which the problems could be curtailed.

The issue of education, especially tertiary education, has been problematic with governments failing to meet the demands of university unions, resulting in strikes, almost on a yearly basis. It is hoped that a lasting solution to this springs forth soon.

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