Nigeria’s Economy: Debts burden, exchange rate, other pressures trouble FG
…As Govt eyes increasing revenue through productivity, value addition
…Osinbajo laments Naira’s exchange rate, debt service to revenue ratio
…Reps fume over N3.3trn domestic debt, grill DMO
…As El-Rufai calls for discontinuity of subsidy regime
Troubles of the Nigerian economy have put the Federal Government under pressure, with the Government expressing concern over recent negative indicators including eroding exchange value of the Naira before other currencies, particularly the Dollar.
This is just as rising debt and the burden of servicing same have evoked questioning the executive by the legislative chambers. The Federal Government on Monday put up a lamentation that the Country’s exchange rate value erosion remained a subject of concern to it.
The government also noted with concern that Nigeria is buffeted with local security and economic challenges as well as global turbulence on the political, economic and social fronts.
…Vice President laments Naira’s exchange rate, debt service to revenue ratio
Expressing concern over the economy, Vice President Yemi Osinbajo, while declaring open the 2022 Nigeria Economic Summit held in Abuja on Monday, said as the Country continues to face economic challenges, the reality before the nation is to without sentiments, determine how best to manage the situation of the prevailing “exchange regime” by finding a mechanism for increasing supply and moderating demand which will be transparent and will boost confidence.
Touching other negative economic indices, he said urgent action must be taken to bring inflation down.
Explaining that inflation is both a tax on the poor and disrupts long term growth, the Vice President said that Inflation in the Country is partly structural arising from infrastructural deficiencies, increased money supply, imported inflation and depreciation of the Naira,
“Our exchange rate regime remains of concern. The discussion that we must have, shorn of sentiments, is how best to manage the situation by finding a mechanism for increasing supply and moderating demand which will be transparent and will boost confidence.
“I am sure most can recall several efforts have been made in the past such as the Interbank Foreign Exchange Market, Retail Dutch Auction System, Wholesale Dutch Auction System, etc.
“While they may not have been perfect, the rules were clear and the gap between the official and parallel markets was not so wide. The thing is that there should be some element of price discovery in our policy regime. This will boost confidence and increase inflows of foreign exchange,” he said.
On inflation, he said, “We will also have to take urgent action to bring inflation down because it is both a tax on the poor and disrupts long term growth. Inflation in Nigeria is partly structural arising from infrastructural deficiencies etc, but there is also an aspect that is caused by increased money supply, imported inflation and depreciation of the naira. “In addition, therefore to the monetary measures being taken by the Central Bank of Nigeria, we would need to increase domestic production of food and make sure that it gets to the market.”
He lamented other state of affairs as local security and economic challenges, global turbulence on the political, economic and social fronts, tensions of Russia-Ukraine war among others, as troubles posing challenges to the Country.
Osinbajo who said over the years, the Summit has become the forum for high quality engagements amongst thought leaders, captains of industry, civil society and decision makers in the highest echelons of government on the economy of the country, noted that the theme of the Summit ‘2023 & Beyond: Priorities for Shared Prosperity’ calls on everyone to reflect on what the nation’s priorities should be to attain inclusive prosperity from 2023 and beyond.
“This is an important question given the frightening headwinds of the past three years and the emerging local and global trends that will most certainly define the future.
“We are buffeted on all sides: local security and economic challenges, global turbulence on the political, economic and social fronts. The Russia-Ukraine war and tensions amongst the great powers is impacting Africa including through higher food prices and disruptions to democratic governance.
“The global economy is yet to recover fully from the effects of COVID-19 especially the debts that were racked up to cope with economic slowdown and there is continuing disruption of global supply chains.
“Added to these of course is the existential challenge of climate change as can be seen from rising sea levels, drought and flooding; the terrible impact of which we have recently seen in many States of Nigeria.
“Given this background, it is clear that our work is cut out and we have to choose our priorities going forward very carefully. There are, of course, a whole gamut of things that require our attention and many are well captured in the National Development Plan 2021 to 2025. But permit me the liberty of sharing some.
“The first, of course, is improving macroeconomic conditions. On the positive side, the economy continues to grow with GDP growth at 3.54 per cent in the 2nd quarter of this year. Non-oil revenues have similarly continued to improve due in part to strategic revenue initiatives including the annual Finance Act.
“For instance, the increase in VAT from 5 per cent to 7.5 per cent in the 2019 Finance Act led to an increase in revenues by up to 69 per cent above target in 2021 while in the same period corporate income tax was 15.5 per cent above target, customs duties were 10 per cent above target and independent revenues of government were up by 17.8 per cent.
“But it is still our revenue challenges that heighten the notion that we have a debt problem, which is really the case given that our debt/GDP ratio is just 23 per cent. It is also true though that what matters right now is our debt service to revenue ratio which is undoubtedly high,” the Vice President said.
On the way forward, he said, “But I think it is increasing revenues that should engage most of our attention. We have already seen real improvements in our non-oil revenues but our focus must now be on productivity or encouraging value addition. Productivity and value addition means creation of traceable value, it means jobs, and opportunities and it means more tax revenues.
“To increase productivity, we must free up our environment for business, make local and international trade easier by fixing the ports, effecting the National single window, revamping our customs processes and tariff codes to reduce delays and arbitrariness, removing needless restrictions on imports to enable value added processes.”
He submitted that closer attention should be paid to the institutional insight of the Agriculture for Food and Jobs Programme of the Economic Sustainability Plan which sought to support small scale farmers by guaranteeing uptake of their production through enabling bigger farmers, suppliers to manufacturing companies and commodity exchanges to support them across every stage of production.
On climate change, he said, “It is now evident that if there is one global issue that will impact local economies most profoundly it is climate change.
“It bears repeating that African countries including Nigeria did very little to cause global warming but yet as recent floods all over the country show, we bear the brunt of it. We must continue to call for a just transition that enables us to use our abundant gas resources to meet our energy needs including for electricity and cooking.
“This will enable us to secure the resources needed for investment in natural gas as well as in renewable forms of energy. Nigeria should continue to work alongside G77 and China partners on the issue of compensation for ‘Loss and Damage.’
“This is essentially requiring that those who caused the climate change related challenges that we face should pay to help us overcome these challenges.”
Expressing pleasure that the matter is on the table at the ongoing COP 27, he said, “It should be pursued to its logical conclusion of securing additional finance for developing economies. At the same time we must also include some of the excellent ideas around debt for climate swaps in our climate finance tool kit.
“These swaps can be a win-win for debtors and creditors. They will increase the fiscal space for climate-related investments and reduce the debt burden for participating developing countries.
“For the creditor the swap can be made to count as a component of their Nationally Determined Contributions (NDC). Yet another priority in the discussions around climate change is that of unlocking the potential of carbon markets especially in Africa.
“In short voluntary carbon markets work by the purchase of carbon credits by corporations in the developed world to offset their own emissions.
“The Africa Carbon Markets Initiative was launched last week at COP 27 and it has been estimated that Nigeria could produce more than 30m tonnes of carbon credits annually by 2030 bringing in more than $500m annually. The future are the jobs and opportunities from the green economy.
“We must press our advantage in renewable energy. The Solar Power Naija Programme launched under the Economic Sustainability Plan is designed to achieve five (5) million solar connections impacting over twenty-five (25) million Nigerians will contribute in this regard. But the impact includes opportunities in manufacturing and maintaining solar equipment and facilities.”
He said another key priority for the country to leverage on is the disruptive technologies offered by digitisation, stressing that “digitisation is now upon us and it is different from previous advances in technology because it has become a general purpose technology affecting nearly every facet of life.
“However, we are now on the cusp of the 4th Industrial Revolution resulting from the increasing economic viability of advanced robotics, artificial intelligence, 3-D printing, the Internet of Things, cloud computing, big data analytics, and blockchain technologies.
“We have already seen the impact of digitisation in Fintech in Nigeria and the story of how our young people managed to create six unicorns in a period of two recessions is one that will continue to be told.
“We must build on these achievements which also offer us the opportunity to leapfrog by deploying digital technologies in agriculture, health, education, logistics, and even manufacturing, housing and smart power grids.”
On the need to improving social safety programmes, he said, “This government introduced the most comprehensive and resourced social investment programme, something this programme helped us to do was a more bottom up approach to economic planning and even budgeting.
“It also helped us to implement a wealth and opportunity creating social investments as opposed to mere poverty alleviation. We are far from our set objectives but we have begun and must press forward.
“The last priority I will mention on this occasion is the need for more intentional and focused investment on our youth, especially in globally marketable skills, access to credit, protection of intellectual property rights of innovators and inventors and access to global markets. I trust that some of these issues will be given deeper attention in your discussions at this summit.”
…Reps fume over N3.3trn domestic debt, grill DMO
Meanwhile, as concern rises over the economy, the House of Representatives on rises over the economy, the House of Representatives on Monday expressed worry over the debt profile of the Country, grilling the Debt Management Office (DMO) on rise in domestic debts to the tune of N3.3 trillion in 2023.
The Director-General, Debt Management Office (DMO), Ms Patience Oniha, upon appearance on Monday expressed worry over the debt profile of the Country, grilling the Debt Management Office (DMO) on rise in domestic debts to the tune of N3.3 trillion in 2023.
The Director-General, Debt Management Office (DMO), Ms Patience Oniha, upon appearance on Monday before the House of Representatives Committee on Aids, Loans and Debt Management, was subjected to questioning to explain the disturbing rise in domestic debts of the Country.
The Committee frowned at continuous borrowing by the Federal Government.
The Chairman of the Committee, Hon. Ahmed Safana, expressed surprise at the astronomical increase in debt profile of the country through borrowing by the government.
The lawmaker lamenting there is a huge increase in domestic and external debts from borrowed funds by the Federal Government, reminded the DMO it is entrusted with the role of ensuring frequency of repayment.
He said that there was N1trillion increase in the debt profile of the Country in the last one year, while calling on DMO, as the relevant agency, to halt the frequency of borrowings.
The DG told the Lawmakers that the domestic debt profile of the country stood at N3.685trillion and there is another N2.57billion from external borrowing by the government, a disclosure that prompted the committee stating that borrowings by government at any level must be tied to specific projects, while demanding details of the N3.55 trillion earmarked for borrowing in 2023 budget. At the budget session, a member of the Committee, Hon. Emeka Azubogu (Anambra-PDP) decried frequent borrowings.
Hon. Promise Dike (Rivers-PDP) demanded that the agency should submit to the committe all details of assets sold, payment made and outstanding debts owed to the agency under privatisation.
Responding, Oniha said domestic debt profile rose from N3.2 trillion to N3.3 trillion due to high interest rate from borrowed funds from domestic and international sources of funds.
She said that borrowing was a collective responsibility and there was need for the parliament to look at borrowing of funds by the government from macro-economic perspectives.
Her position that there is the likelihood of debt services becoming higher by the end of the year 2022, generated concerns by the lawmakers who reminded the DG that the agency is the relevant body to check the frequency of borrowings.
The DG attributed the debt service challenges to the low revenues earned by the Country.
She said that the government has resorted to a measure called ‘ways and means’ where the Federal Government borrows money from the Central Bank of Nigeria directly.
She said that the international market has closed its doors of borrowing, making it difficult for the Country to borrow.
The DG, however, said that measures were provided in the 2023 budget to service the loans, stressing that Nigeria had not defaulted so far.
“There is a line called ‘ways and means advances.’ This is a process where the Federal Government borrows from the Central Bank directly. This has been in the media a lot. It is when the government runs an over draft with the Central Bank. It is not free, you pay interest on it. For clarity, the ways and means are under the management of the Office of the Accountant General, but supervised by the Minister of Finance.
“In 2022, no provision was made for payment of interest on ways and means. But if you look at the actual, you will discover that some amount has been incurred on ways and means advances. It is not free. So, we pay interest.
“For domestic debt, the budget was N2.5 trillion, but we have spent N1.86trn. External debt is N866 billion compared to N1.123 trillion. The figures are for three quarters. On the Sinking Fund, we have N286 billion, while ways and means advances which was not provided for in the budget, the Central Bank has charged over a trillion naira as interest. That is why in the MTEF/FSP, you discover that revenue to debt service was very high.
“For January to April, we actually exceeded 100 per cent of revenue. So, apart from revenue being very low, there is this issue of ways and means advances. So, by the end of December, Debt services will be higher than what was budgeted, largely because of ways and means advances.
“One thing to add is that interest rates are going up in the domestic market and even internationally, but we have provided for it in the 2023 projections, including interest of N1.2 trillion on ways and means advances. It was not featuring before, but we felt it is the right thing to do since it is a loan which you are paying separately.
“It is common knowledge that we are low on revenue. But what we do as a country is to make sure it is there in the budget and there is seamless process for it. So, in terms of debt servicing, provisions are made in the budget to service the loan and so far, we have not recorded any default.
“In the 2022 Appropriation Act, you will see that there was new borrowing of N6.1trillion. Domestic is N3.564trillion and external is N2.569 trillion.
“For domestic borrowing, as at October 2022, we had raised N2.2trillion, meaning that we have raised about 91 per cent of the total domestic borrowing to support the government. That is what has helped in breaching the gap in revenue which under performed significantly between January and August.
“On the outstanding ones, we are working on the Sukuk and the offer will open in the next two weeks and we will issue FGN bonds as well.
“We are hoping to raise the balance before the end of the year. Where there is issue is the external borrowing. What was provided for in the 2022 budget is N2.57 trillion. The reality is that is it was before, by now, we would have issued Euro bonds to raise the money. But from the fourth quarter of last year, the International Capital Market has not been opened to countries like Nigeria.
“In 2021, there was N6 billion to be raised, but we raised N4 billion out of that. This year, we raised N1.25 billion. That was the only day the International capital market was opened.
“Since January this year, countries with our rating, the international market are not looking for us because the invasion of Ukraine by Russia turned around things in the world significantly. So, inflation rates are high, interest rates are high and investors are saying there is a lot of uncertainty, there is threat of recession.
“So, what they have decided to do is to put their money in the G7 nations. Interest rates there have gone up significantly and monetary policy has raised interest rate across the world and foreign investors are happy to invest in those nations.
“Right now, they don’t know what will happen with us and we have not issued any Euro bond this year because the market has not opened. So, right now we are looking at export credit, development finance institutions to raise money which are project tied for government.
“The International Capital Market is not closed only to Nigeria. Foreign investors are huge, but they have a limit to the amount of risk they can take.
“You have Fitch and others rating countries. The very strong countries are the ones in tripple A and USA used to be part of the triple A and I think they have been brought down to double. It is not only Nigeria, but the whole of Africa.
“For this year, it is only Nigeria and Egypt that were issued a Euro bond. It is the same with some of the South American Countries because we have the same rating.
“The ratings give the investors the perception of how risky you are. Investors are now putting their money in securities issued by the US government, Japan, France and others because they know that those countries will pay. We were even lucky to raise money in March,” she said.
…Outcry on petrol subsidy regime become more resounding
Meanwhile as concern on economic conditions of the Country grows with lamentation, stakeholders have harped on the petrol subsidy regime, expressing resistance over its sustainability.
The Independent Petroleum Marketers Association of Nigeria (lPMAN), on Monday said subsidy regime on Premium Motor Spirit, popularly known as petrol, is no longer sustainable.
The National Operations Controller of lPMAN, Mr Mike Osatuyi, in an interview on Monday in Lagos, against the backdrop of the ongoing hike in the pump price of petrol in filling stations across the Country, condemned further payment of subsidy on petrol.
Noting that the Federal Government had N20.51 trillion expenditure in the 2023 budget against a revenue of N9.7 trillion, leaving a deficit of N10.78 trilliion, Osatuyi said the government hoped to finance subsidy on petrol up to June 2023 at a cost of N3.6 trillion, using Central Bank of Nigeria (CBN) official rate of N435 to a dollar.
“At present, the CBN official rate is hovering around N445 to a dollar which is above the N435 to a dollar projected in the 2023 budget,” he said, lamenting the subsidy regime had led to increase in budget deficit and caused borrowing setbacks to the economy.
He also said subsidy had made smuggling of petrol a thriving business because of the huge profit involved.
“Subsidy regime does not allow competition, while monopoly is the language of petrol business as the Nigerian National Petroleum Company (NNPC) Ltd. is the sole importer, manager and distributor of petrol.
“Subsidy kills efficiency in the procurement and supply chain of petrol business operations and deprives government of huge revenue,” Osatuyi said.
He said petrol subsidy could have benefitted Nigerians but half of assumed consumption found its way to neighbouring countries.
He noted that Nigeria’s petrol was cheaper at landing cost compared to neighbouring countries, calling on the government to put all necessary palliatives in place to cushion the negative effects of the imminent increase in price of petrol before removing subsidy.
“Nigeria’s debt servicing of N6.3 trillion per year is not healthy for the Country with mere capital expenditure of N5.35 trillion,” he said.
Osatuyi said the Group Chief Executive of NNPC, Malam Mele Kyari confirmed that the cost of petrol was around N510 per litre without subsidy.
He added that if CBN made forex available at official rate to the importers at N445 to a dollar, pump price of N510 per litre was achievable.
“As at October 2022 exchange rate of Naira to Dollar stood at 445 naira againt 435 projected in 2023 budget.
“If CBN failed to avail marketers forex at official rate of N445 to a Dollar after deregulation, importers will have no choice than to turn to the black market for forex, which will push up the pump price of petrol to between N650 to N700 per litre,” Osatuyi explained.
He said total deregulation of the downstream sector of the petroleum industry remained the solution to fuel scarcity.
According to the lPMAN boss, deregulation remains the answer to all challenges confronting the downstream sector and also allows all the players to key into the sector and import freely.
“Total deregulation remains the best solution to ending fuel scarcity. The deregulation of the downstream sector remains the only potent and lasting solution to scarcity.
“But the cost implication of the policy will make the price of petrol too expensive for Nigerians, as deregulation will shift the burden from the government to users of the product,” he said.
…El-Rufai calls for discontinuity of subsidy regime
This is just as the Governor of Kaduna State, Mall. Nasir El-Rufai has called for the immediate removal of petrol subsidy.
El-Rufai who made the call, on Monday at the “State-of-the-State” session at the ongoing 28th Nigerian Economic Summit, in Abuja, disclosed that governors of the 36 states and officials of the Federal government, at the National Economic Council, had agreed to the removal of petrol subsidy in September 2021.
He expressed surprise that President Muhammadu Buhari failed to implement the decision, despite the immense fiscal pressure the subsidy regime has brought on government finances and the corruption associated with it.
According to him, there was no transparency in the administration of the subsidy, which should have informed the Federal Government to end the regime before now.
He feared that without discontinuing subsidy regime, a time may come when the nation’s entire monthly oil revenue may be entirely gulped by subsidy payment.
