By
Babajide Komolafe, Peter Egwuatu, Victor Ahiuma-Young, Henry Umoru, Michael
Eboh, Johnbosco Agbakwuru, Nkiruka Nnorom,Rosemary Onuoha and Yinka Ajayi
- · As FEC appoints $2.78bn Eurobond managers
- · Nigeria needs to avoid another debt burden – NLC, Rewane, Ezekwesili
- · Corporate Nigeria lampoons FG’s borrowings
- · Senate asks CBN to increase ATM withdrawal to N40,000 per transaction ABUJA — The Senate and Nigeria Sovereign Investment Authority, NSIA, yesterday warned the Federal Government against returning the country into a debt trap. Though the Senate eventually approved President Muhammadu Buhari’s request for $2.78 billion Eurobond, it reiterated the concerns of the Bretton Woods institutions over rising public debt in Nigeria.
The World Bank and the International Monetary Fund, IMF, at the
just-concluded annual meetings in Indonesia had warned that a trend of rising
public debt in developing countries was undermining economic development in the
affected countries. The NSIA also warned that it is suicidal for the nation,
the states and some businesses in the country to borrow dollar-denominated
funds from the international financial market to finance infrastructure
development in the country.
However, the Senate’s approval for the issuance of $2.786 billion
from the international capital market was as contained in the 2018
Appropriation Act. It also approved the issuance of $82.54 million to refinance
the balance of $500 million matured Eurobond in the international capital
market and advised the Federal Government to do everything possible to reduce
or limit its request for more external borrowing and source other means of
generating revenue internally. According to the Senate, this will help avoid a
cleverly managed re-conquest of the country through a debt overhang.
Resolutions of the Senate were sequel to the consideration of the report on the
new external capital raising presented by Chairman of the Committee on Local
and Foreign Debt, Senator Shehu Sani (APC, Kaduna Central). Presenting the
report, Senator Sani said: “That the issuance of both USD2.786 billion and USD
82.54 million from International Capital Market is for the part- financing of
2018 Budget, with particular interest to finance key infrastructure projects
proposed in the 2018 Budget. “The committee also observed that the capital
raising of USD2.786 billion will result in a portfolio mix of Domestic Debt- 68
percent and External Debt- 32%, which is an improvement over the ratio of 70:30
as at June 30,2018. This brings the debts portfolio mix closer to the target of
60:40. “The committee further observed that the issuance of these bonds will
contribute to the implementation of the Debt Management Strategy which seeks to
reduce the cost of borrowing, lengthen the maturity of the public debt stock,
free- up space in the domestic market for other borrowers and help to increase
Nigeria’s external reserves.
It would be recalled that President Muhammadu Buhari had written
the Senate, seeking the approval of the lawmakers to raise external
funding for the 2018 budget. In the letter dated July 23, and read last week by
the Senate President, President Buhari said the sum as approved in the 2018
Appropriation Act, would be used to finance deficits and key infrastructure
projects in the 2018 budget.
FEC okays 6
transaction advisers on Eurobond
The Senate approval came as the Federal Executive Council, FEC,
presided over by President Muhammadu Buhari, also yesterday approved six
transaction parties to advise the federal government on the Eurobonds issuance
and other securities at the international capital market. The transaction
parties are Citigroup Global Market Limited and Standard Chartered Bank as
joint managers; FSDH Merchant Bank Limited as financial adviser; White And Case
LLP, Banwo and Ighodalo as legal advisers and Africa Practice Limited as
technical adviser on communication. Minister of Finance, Zainab Ahmed,
while briefing journalists in Abuja, said the transaction parties were expected
to advise the government on “the structure and timing, as well as,
documentation for the issuance” of the Eurobonds and other securities. She said
the approval was part of government’s commitment to the implementation of the
2018 Appropriation Act, adding that “consistent with government’s policy on
development of infrastructure, the proceeds of the euro bond issuance will be
deployed to fund critical capital projects in the 2018 Appropriation Act.” An
estimated N849.673 billion ($42.78 billion) is expected to be externally
borrowed to finance part of the deficit in the 2018 appropriation Act.
While there are worries over Nigeria’s rising debt profile, which
is estimated to have grown by 145 percent in the past three years, the
government says there is room for more debt for Nigeria. Explaining the
nation’s debt-to-GDP ratio, Udo Udoma, Minister for Budget and National
Planning, said Nigeria had a sustainable debt profile. “Nigeria has a
sustainable debt profile with ample room to borrow more whenever we may require
doing so. Nigeria runs no debt risk and the Debt Management Office, DMO,
carries out an annual Debt Sustainability Analysis to ensure that we stay that
way,” he said.
It’s
suicidal to borrow in dollars — NSIA boss
Meanwhile, the Managing
Director of Nigeria Sovereign Investment Authority, NSIA, Mr. Uche Orji,
yesterday, warned that it was suicidal for Nigeria and some businesses in the
country to borrow dollar-denominated funds from the international financial
market to finance infrastructure development in the country. Speaking at the
just concluded Nigerian Gas Association, NGA International Conference and
Exhibition in Abuja, Orji disclosed that the NSIA, which is the manager of
Nigeria’s Sovereign Wealth Fund, SWF, took that path in the not too recent past
and was yet to fully recover from the crisis that the currency mismatch caused
the organization. Orji noted that Nigeria, and, indeed, other African
countries, would not develop if they continued to borrow funds in dollars and
other major international currencies to finance their infrastructure projects,
whereas their revenues were in their local currencies.
He said: “In terms of currency mismatch that necessitated
the recent crisis that we are yet to recover from, why can’t you negotiate and
price some of these things in local currency? “It is suicidal to fund
infrastructure in dollars when your revenue is in naira. It is not going
to work. Africa and Nigeria would not develop paying for all of these things in
dollars when your revenue is not only in naira. It is regulated, it is local
currency and we have these mismatch situations.” Orji further rued the NSIA’s
first investment in the gas sector, blaming the challenges on currency mismatch
and many other challenges in the gas sector. “It has been very interesting in
the last five years, especially when we started getting involved in the gas
sector. ‘’The first investment had its challenge. We would not like to do
any like that again; we had to restructure. ‘The main reasons that happened, is
the issue of the mismatch in currency; there was also the issue of bad debt,
payment terms were not adhered to; there were also environmental issues, with
damages to pipeline. There were many challenges in the sector. “However, we
believe that the way to fund these projects is not from taking expensive bank
loans; it is not from the limited equity that we have; we believe that there
should be an opportunity for more private equity participation in the gas sector,’’
he said. Orji also lamented the rate of gas flaring in the country, while
commending the Federal Government for introducing new tariff structure for gas
flaring. He explained further: “It is quite disheartening to watch us
flare gas as if it is useless. Every time you do that, it is equivalent to
taking bundles of dollars to a stove and burning them.
“You cannot live in a country that is suffering from
deforestation, yet we are flaring enough Liquefied Petroleum Gas, LPG, or gas
equivalent that can create LPG in the market.”
Avoid debt
burden — NLC
Reacting to the development, President of Nigeria Labour Congress,
NLC, Ayuba Wabba, advised the Federal Government to be careful on foreign loans
and bonds to avoid unnecessary debt burden or traps. Wabba said: “Even at our
last National Executive Council, NEC, meeting, congress examined this issue of
borrowing not only in Nigeria, but also the African continent as a whole.
We declared as that in the past six years, Sub Saharan African
governments have issued $81 billion in bonds alone to investors hungry for
yield. ‘’This is in addition to several loans and bilateral debts. Also, bond
yield has now jumped from 6% to 16% interest. Public debt in Sub-Saharan Africa
has climbed to 50% of GDP. The case of Zambia with 59% of GDP as debt should be
an eye opener to African leaders. “We added by urging African governments that
with the hidden condition and terms of these loans now coming into the open,
our leaders should understand that there is no free lunch anywhere, even in
Freetown. So, we need to be careful as a country to avoid sinking back into
debt trap.”
It’s bad to
borrow for consumption — Rewane
Also reacting was corporate
Nigeria which kicked against the position of the federal government.
Managing Director/Chief Executive, Financial Derivatives Company, Mr. Bismarck
Rewane, taking sides with the Senate on the risk of Nigeria’s increasing
foreign borrowing, said the warning from the Senate was necessary and welcome,
noting that what made Nigeria’s foreign borrowing worrisome is that it is
largely for consumption at expensive interest rate.
He said: “It is not the amount of debt that is the problem, it is
the use of the proceeds of the debt and the cost of the debt. “What we are
borrowing for is to fund the budget deficit which is mainly recurrent. So in
other words we are borrowing for consumption. That is not advisable for a
country that is having growth issues. “We need to borrow for capital
expenditure (CAPEX).
It is true that our CAPEX has increased from what it was in terms
of ratio, which was 80 percent recurrent expenditure and 20 percent CAPEX, and
now it is 30 percent CAPEX, but it is still far from where it ought to be. The
United Nation Development Programme (UNDP) talk about 60:40 percent ratio in
favour of CAPEX. So there is work to be done, plenty of work to be done, no
doubt about that. “Again the caution is necessary and it is welcomed.
But the thing is that we have to fund the deficit in the short
run. So the structure of the debt, the cost of the debt, it is foreign currency
denominated loan. So if we are taking $2.8 billion at 5.2 percent per annum,
that is quite expensive. And we are going to use it for consumption. So once we
finish spending it, it is gone, it is finished. “That is why the call for
caution is welcomed. But I am sure the federal government and the ministry of
finance are aware of the consequences, that is why they are making sure it is
been taken with caution.”
FG digging
in instead of digging out – Ezekwesili
Responding to the the $2.8
billion euro boned approval,Transperency Internation Boss, Dr.Obi Ezekwesili
said, What it portend for the economy is that the Federal Government is digging
in when they are suppose to be digging out. Already, the debt service to
revenue is so high because it’s 69 percent today. What it’s mean it that 69
percent out of your revenue is use to service debt. That is not a sustainable
situation to be in.
I see the government quote all the time but that is a blunt quote
in an environment when your GDP is not reflective of your productivity”. “You
measure your productivity by the revenue your GDP generate. if you cannot
service your debt, you will be considered bankrupt . The Federal government
found itself in this situation because they have refuse to engage in any key
reform in the economy. According to the report the federal government
released in 2017: all of Nigeria’s oil revenue is no longer sufficient to pay
public sector salaries.
As are 2 million people in the public sector and our Oil revenue
cannot sustain them. So we have a situation where we have debt servicing, over
head cost .”
It is a fait
accompli — Chukwu
In his reaction, Johnson Chukwu, Managing Director/CEO, Cowry
Asset Management, while acknowledging that the Senate only re-emphasised the
earlier warning issued by the IMF on Nigeria’s debt position, stated that
though the country does not have debt crisis as it stands, but caution that
there is need to exercise restraints in further debt accumulation. “The Senate
warning is in consonance with the, IMF’s warning. Clearly, we don’t have a debt
crisis as it stands today, but we have built up debt at a fast rate that if we
continue at that rate, we are going to have a debt crisis. I think that is what
IMF had warned about and that is what the Senate is obviously repeating that we
need to be cautious of how we are accumulating debt.
“Interestingly, the borrowing, according to
the government, is captured in the 2018 budget, which has been passed into law,
so the Senate was constrained because they have passed an enabling law, which
allowed that level of borrowing,” he said. According to him, “given that the
country has about 73billion dollar in debt position, which is about 19.4
percent of the GDP ($376 billion US Dollar), it behoves the executive arm of
the government to stay away from additional provision for borrowing and should
they not do that, the National Assembly should constrain them from factoring
such level of borrowing in 2019 budget. “For now, it is fait accompli and given
that situation, the key thing is to prevent a worsening of the debt situation.
It also behooves the executive and National Assembly to ensure
that in preparing the 2019 budget, we do not have material borrowing captured
borrowings into the budget”, he added.
It depends
on the purpose – FBN Insurance boss
Reacting to the borrowing decisions Managing Director of FBN
General Insurance, Bode Opadokun, said: “l don’t see anything wrong in
borrowing, however, at the time you are borrowing, what do you want to
use it for and what is the plan of paying back? If it is genuine borrowing that
will be used for the purpose it is meant for, then the probability of paying
back should not be a challenge. “But l cannot speak for the government in the
sense that we don’t know if what we are meant to understand is the reason for
the borrowing is exactly what it is going to be used for.
Personally l have done business in the past where l borrowed and
paid back and that helped put my business in better position. “We have seen
instances where people borrow and that was the bane of their business, because
they did not do their home work well. “So borrowing is not the issue, but what
do you borrow for and how do you want to pack back. The structure must be
clear. If the intention is genuine and very clear. l don’t see anything wrong,
but once it is the other way, l cannot be in support of that.”
We should be
worried by funds usage – Stockbrokers
A Chartered Stockbroker/Managing Director, Sofunix
Investment & Communications, Mr. Sola Oni stated: “In any country the issue
of debt should be concerned of where the fund being borrowed is channelled
to. The US is highly indebted, but the country invests the fund borrowed
into productive use. The country invests a lot in infrastructure that helps for
further production of goods. If Nigeria can channel the borrowed money to
infrastructure, then we don’t have cause to worry or panic but if it is
diverted to other non-productive investment, then that should be our concern.
The Senate need not to worry about the foreign borrowing since the federal
government said it is cheaper when compared to domestic borrowings. If they
don’t borrow bridging the infrastructure gap in the country would be a problem.
So if borrowing can turn our industrial development, the better for Nigeria.
The Chairman, Association of Stockbrokers Houses of Nigeria,
ASHON, Chief Patrick Ezeagau said: “Yes the International Monetary Fund, IMF
has warned the government of the consequences of the excessive borrowing. But
then, Nigeria has infrastructure gap that needs to be bridged. So in my
own view I dont think that borrowing is bad provided it is not diverted for
consumption and recurrent expenditure. So, government can go ahead to borrow
while senate should monitor the use of such money.
Vanguard
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