Business

Debt servicing gulps N6.16trn in 16 months

Published

2 years ago

September 20, 2022

Debt service gulped N6.16tn in 16 months, according to the 2023-2025 Medium Term Expenditure Framework & Fiscal Strategy Paper.

In 2021, the Federal Government spent N4.22tn on debt service, and further N1.94tn between January and April 2022.

A breakdown shows that domestic debt service cost N2.05tn, while foreign debt service gulped N946.29bn in 2021. There was also N600m sinking fund and N1.22tn interest on ways and means, which is defined as the government borrowing from the Central Bank of Nigeria.

In the first four months of 2022, domestic debt servicing cost was N1.2tn, whereas foreign debt service expenditure amounted to N334.24bn. There was also N405.93bn interest on ways and means.

The Federal Government further projected that debt servicing to cost N10.43tn by 2025, according to the 2023-2025 MTEF/FSP documents.

This is a 182.66 per cent increase from the N3.69tn budgeted for debt service in 2022.

Multilateral agencies and economists have constantly warned the Federal Government about the rising cost of debt servicing, which could trigger a crisis for the country.

However, the Minister of Finance, Budget and National Planning, Dr Zainab Ahmed, and the Director General of the Debt Management Office, Patience Oniha, have insisted that the country does not have a debt problem but a revenue challenge.

In a document by the DMO DG recently obtained by our correspondent, the DMO stated that high debt levels would often lead to high debt services and affect investments in infrastructure.

According to the DMO DG, “High debt levels lead to heavy debt service which reduces resources available for investment in infrastructure and key sectors of the economy.”

In the document, she stressed the need for debt sustainability, which she defined as the ability to service all current and future obligations, while maintaining the capacity to finance policy objectives without resort to unduly large adjustments or exceptional financing such as arrears accumulation and debt restructuring, which could otherwise compromise the economy’s stability.

Speaking at the launch of the World Bank’s Nigeria Development Update titled, ‘The urgency for business unusual,’ held recently in Abuja, the finance minister had admitted that Nigeria was struggling to service its debt.

She said, “Already, we are struggling with being able to service debt because even though revenue is increasing, the expenditure has been increasing at a much higher rate, so it is a very difficult situation.”

The International Monetary Fund had earlier warned that debt servicing might gulp 100 per cent of the Federal Government’s revenue by 2026 if the government failed to implement adequate measures to improve revenue generation.

According to the IMF’s Resident Representative for Nigeria, Ari Aisen, based on a macro-fiscal stress test that was conducted on Nigeria, interest payments on debts might wipe up the country’s entire earnings in the next four years.

Aisen said, “The biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue. As you see us in terms of the baseline from the Federal Government of Nigeria, the revenue of almost 100 per cent is projected by 2026 to be taken by debt service.

“So, the fiscal space or the amount of revenues that will be needed and this, without considering any shock, is that most of the revenues of the Federal Government are now, in fact, 89 per cent and it will continue if nothing is done to be taken by debt service.”

Less than two months after Aisen’s warning, the finance minister disclosed that Nigeria used 118 per cent of its revenue to service debts.

It was also reported that Nigeria’s debt servicing bill increased by 109 per cent, from N429bn in December 2021 to N896bn in March 2022.

A report by the Nigerian Economic Summit Group and the Open Society Initiative for West Africa has disclosed that Nigeria and 10 other Economic Community of West African States countries were currently in debt distress based on debt sustainability analysis.

The 10 other countries are Benin, Burkina Faso, Cabo Verde, the Gambia, Ghana, Guinea Bissau, Liberia, Niger, Senegal, and Togo.

The World Bank recently said that Nigeria’s debt, which might be considered sustainable for now, was vulnerable and costly.

According to the Washington-based global financial institution, the country’s debt was also at risk of becoming unsustainable in the event of macro-fiscal shocks.

The World Bank recently said that Nigerian states would likely lose N18.8bn in oil and gas revenues in 2022, as worsening revenue collection at the federation level would increase budgetary pressures for the states.

Business

Oyetola in Lagos, defies downpour, embarks on inspection tour

Published

16 mins ago

May 17, 2024

NewsDirect

By Seun Ibiyemi

The rain in Lagos began very early on Thursday morning. But the torrential rainfall did not stop Minister of Marine and Blue Economy, Adegboyega Oyetola, CON, from embarking on the tour of two key institutions that were recently brought under his ministry — the Nigerian Institute for Oceanography and Marine Research (NIOMR) and the Liaison office of the Department of Fishery and Aquaculture, which houses College of Fishery, Lagos.

His first port of call was NIOMR, where the Chief Executive of the institute, Prof. Abiodun Sule, took the Minister through some of its strategic breakthroughs, including unveiling some of the different species of fish in our waters.

The Minister charged the Institute to take up the challenge of mapping out the country’s various marine resources, saying the country needs to know what it has and in what quantity.

He charged the staff to redouble their efforts and ensure they find a solution to the rising cost of fish feeds in Nigeria. The Minister reiterated his desire to increase local production of fish, while reducing dependence on importation.

From the Institute, Oyetola and his entourage, which included the Permanent Secretary, Oloruntola Olufemi; Director, Maritime Safety and Security, Babatunde Bombata, and the Executive Director, Engineering and Technical Services, Engr. Ibrahim Umar, who represented the the MD of NPA, headed for the Department of Fishery and Aquaculture, where the delegation inspected the Laboratory and charged the staff not to lower the standard of monitoring and inspection so as to ensure the country’s exporters are not blacklisted by the International community and also ensuring that those being imported meet required standard.

He assured the staff of both institutions of his commitment to their welfare, while urging them to also increase their capacity and productivity, as he wants to see the fishing contribute to job creation and increase in revenue of the FG.

The elated members of staff promised the Minister not to let him down and pledged their commitment to the vision and mission of the Minister with respect to the maritime sector.

Business

CPPE urges CBN to halt interest rate tightening, as businesses are yet to recover from previous hikes

Published

47 mins ago

May 17, 2024

NewsDirect

The Centre for the Promotion of Public Enterprise (CPPE) has called on the Central Bank of Nigeria (CBN) to slow down on monetary policy tightening ahead of its Monetary Policy Committee (MPC) meeting this month, stating that businesses are yet to recover from the hawkish monetary policy stance in the last two months.

The Centre stated this in its reaction to the latest inflation figures published by the NBS where headline inflation rose to 33.69 percent in the month of April from 33.20 percent in March.

According to the statement signed by the Director-General of the CPPE, Dr Muda Yusuf, monetary policy tools should be paused for the fiscal side of the economy to work towards addressing the supply issues affecting the inflation dynamics in the country.

He stated, “Meanwhile we urge the monetary policy Committee to soften its monetary tightening stance for the time being. Businesses are yet to recover from the shocks of the recent bullish rate hikes. The monetary instruments should be put on pause while fiscal policy tools address supply-side factors in the inflation dynamics.”

Furthermore, the Centre appreciated the slowdown in inflation for the month, especially headline and food inflation, but noted that the main drivers of price hikes (food, transport, insecurity in farming communities and other structural problems) are yet to cool down.

He explained that the drivers of inflation are supply-based and being addressed by the fiscal authorities. Also, Dr. Yusuf doubled down on his call to the Nigerian Customs Service (NCS) to set a quarterly exchange rate between N800 and N1000 for import duties assessment, noting that the continuous fluctuation has a pass-through effect on inflation.

In his words, “Meanwhile the exchange rate benchmark for the computation of import duty continues to be a major concern to businesses as it has become a major inflation driver. We again urge the CBN to peg the rate at between N800 -N1000/dollar to be reviewed quarterly. This is necessary to reduce the pass-through effect of heightening trade costs on inflation.”

Meanwhile, the CPPE also lauded the commencement of refining by the Dangote refinery, stating that it would help slow down inflation in the short term.

Recall that Nigeria’s inflation rate rose to 33.69 percent in April on the back of an increase in food and transport prices. The rate is one of the highest in about 28 years.

The CBN, in an effort to rein in inflation, has increased

Business

April 2024: FG, States, LGs share N1,208.081trn

Published

48 mins ago

May 17, 2024

NewsDirect

The Federation Account Allocation Committee (FAAC), at its May 2024 meeting chaired by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, shared a total sum of N1,208.081 Trillion to the three tiers of government as Federation Allocation for the month of April, 2024 from a gross total of N2,192.007 Trillion.

From the stated amount inclusive of Gross Statutory Revenue, Value Added Tax (VAT), Electronic Money Transfer Levy (EMTL), and Exchange Difference (ED), the Federal Government received N390.412 Billion, the States received N403.403 Billion, the Local Government Councils got N293.816 Billion, while the Oil Producing States received N120.450 Billion as Derivation, (13 percent of Mineral Revenue).

The sum of N80.517 Billion was given for the cost of collection, while N903.479 Billion was allocated for Transfers Intervention and Refunds.

The Communique issued by the Federation Account Allocation Committee (FAAC) at the end of the meeting indicated that the Gross Revenue available from the Value Added Tax (VAT) for the month of April 2024, was N500.920 Billion as against N549.698 Billion distributed in the preceding month, resulting in a decrease of N48.778 Billion.

From that amount, the sum of N20.037 Billion was allocated for the cost of collection and the sum of N14.426 Billion given for Transfers, Intervention and Refunds. The remaining sum of N466.457 Billion was distributed to the three tiers of government, of which the Federal Government got N69.969 Billion, the States received N233.229 Billion, Local Government Councils got N163.260 Billion.

Accordingly, the Gross Statutory Revenue of N1,233.498 Trillion received for the month was higher than the sum of N1,017.216 Trillion received in the previous month of March 2024 by N216.282 Billion. From the stated amount, the sum of N59.729 Billion was allocated for the cost of collection and a total sum of N889.053 Billion for Transfers, Intervention and Refunds.

The remaining balance of N284.716 Billion was distributed as follows to the three tiers of government: Federal Government got the sum of N112.148 Billion, States received N56.883 Billion, the sum of N43.855 Billion was allocated to LGCs and N71.830 Billion was given to Derivation Revenue (13 percent Mineral producing States).

Also, the sum of N18.775 Billion from Electronic Money Transfer Levy (EMTL) was distributed to the three (3) tiers of government as follows: the Federal Government received N2.704 Billion, States got N9.012 Billion, Local Government Councils received N6.308 Billion, while N0.751 Billion was allocated for Cost of Collection.

The Communique also disclosed the sum of N438.884 Billion from Exchange Difference, which was shared as follows: Federal Government received N205.591 Billion, States got N104.279 Billion, the sum of N80.394 Billion was allocated to Local Government Councils, while N48.620 Billion was given for Derivation (13 percent of Mineral Revenue).

Oil and Gas Royalties, Companies Income Tax (CIT), Excise Duty, Petroleum Profit Tax (PPT), Customs External Tariff levies (CET) and Electronic Money Transfer Levy (EMTL) increased significantly, while Import Duty and Value Added Tax (VAT) recorded considerably decreases.

According to the Communique, the total revenue distributable for the current month of April 2024, was drawn from Statutory Revenue of N284.716 Billion, Value Added Tax (VAT) of N466.457 Billion, N18.024 Billion from Electronic Money Transfer Levy (EMTL), and N438.884 Billion from Exchange Difference, bringing the total distributable amount for the month to N1,208.081 Trillion.

The balance in the Excess Crude Account (ECA) as at May 2024 stands at $473,754.57.