The Nation Newspaper

Tag: DEBT

  • The debt overhang

    •It requires deft management by the federal and state governments 

    It is no longer news that the Nigerian is in dire straits. As corporate organisations are groaning, so are citizens lamenting. Worse still, not many people believe that the government is working at the desired pace to get the country out of the woods.

    One aspect of the crises that has a potential of compounding the woes is the mounting foreign and domestic debts. The Debt Management Office (DMO) heightened the fears when it released Nigeria’s Debt Management Strategy: 2016-2019, a document that seeks to lay out how government intends to rein in the debt monster. This has heightened, rather than allay fears, as the document pointed out that 30% of the N8.4trillion domestic debt would be due for repayment this fiscal year. This amounts to N2.56trillion, almost half of this year’s budget.

    In addition, the N6trillion budget already has provision for N1.8trn debt component. Domestic sources will account for N984bn while the remaining N900bn will be sourced externally. Economists have warned that this could expose the country to high risks as domestic loan sources expose the country to high interest and could affect the private sector’s ability to grow within the stifling environment.

    This, however, is not to suggest that foreign debts are more attractive. Although they could be contracted at concessionary rates, sometimes under five percent, the regular devaluation of the naira poses a major threat to plans to stabilise the economy.

    A few years ago, the economic managers of the Obasanjo administration decided to pay off the nation’s foreign debt, arguing that it would free resources for national development. A decision to enter the debt trap once again will contradict that position and wipe away whatever benefits it attracted.

    We recall that book by Karl Meier with the provocative title, This House Has Fallen. If the current crisis is not well managed, the economy could as well collapse with all the frightening prospects. We accept that these are difficult times—with dwindling revenue from oil; Britain’s pull-out from the European Union and narrowing international finance options.

    We therefore call on President Muhammadu Buhari and his economic team to redouble efforts at diversifying sources of revenue and reflating the economy. Agriculture and the solid mineral sectors have been neglected for too long and now is the time to devote attention to them. It is not a task for the Federal Government alone, the National Economic Council should work out plans at ensuring that the pressure on the naira is reduced through boosted productivity. Nigeria is endowed with a lot of resources waiting to be tapped by resourceful managers at the local, state and federal levels.

    In view of the revelation thrown up by investigations into the profligacy of the recent past, we call on all relevant agencies of government to probe the nature, structure and sources of such huge domestic debts. Governments should not just assume responsibility for payment of debts without interrogating what they were used for.

    We also call on the federal and state governments to be more disciplined, shrewd and frugal in managing scarce resources. When there is the need to take hard decisions aimed at improving the economy, they  should be courageous enough to take them. The debt burden must be expertly and responsibly managed if Nigeria is to pull through the quagmire.

  • FIRS shuts Atlas Petroleum over $1.5m tax debt

    FIRS shuts Atlas Petroleum over $1.5m tax debt

    • Unseals Costain W/Africa Ltd 

    An enforcement team of the Federal Inland Revenue Service (FIRS), yesterday shut the headquarters of Atlas Petroleum International Limited over the firm’s tax liabilities totaling $1,5million.

    On arrival at the office, located at 1 Chris Madudike Drive, Lekki, Lagos, the FIRS enforcement team, led by Mrs. Ruth Mandeun, met only one employee of the company.                                  The employee pleaded with the team to allow him get in touch with the General Manager of the company, but his pleas were rejected.   Also, the GM’s pleas on arrival  were rejected.

    The team leader advised that he should visit the Ikoyi office of the FIRS to resolve the matter, saying the company was informed on Monday that it should pay a substantial part of its tax liabilities by Wednesday,or risk being shut down.

    Also on yesterday, FIRS officials, led by Anita Erinne, visited companies it sealed on Wednesday. Out of the companies sealed by the team on Wednesday, only Costain West Africa, located at 174, Funsho Williams Avenue, Lagos, was unsealed at 1pm on Thursday.

    The management of the company informed the FIRS team that it had paid part of the taxe liabilities. Erinne said she was aware that the company had paid and ordered its gates unlocked. She, however, explained that she would confirm the exact amount paid by the company.

  • FIRS shuts Meditarian over N4b tax debt

    FIRS shuts Meditarian over N4b tax debt

    • Seals HFP Engineering, others

    The Federal Inland Revenue Service (FIRS) yesterday shut Meditarian Nigeria Limited located at 243, Kofo Abayomi Street, Victoria Island, over a tax debt of over N4billion spanning 2008 – 2013.

    An officer of the firm, Mr Raja, an Indian, said he was not aware of the debt. He called on one Mr. Kola to attend to the FIRS team. Kola admitted that the firm owed the debt and pleaded for time to pay it. “We have been in discussions with your office in Abuja over the matter.” he said. The FIRS officials were not persuaded and sealed the company’s office at at 2:30pm.

    Also, the operational headquarters of H.F.P Engineering Nigeria Limited over the company’s tax liabilities o N536million.

    Employees of the firm were ordered out of the office located at Globe House, Plot 0-17B, Road 8, Victoria Garden City, Lagos.

    The FIRS enforcement unit was led by Anita Erinne.

    Also affected was Dimension Data at Block 235 Muri Okunola Street, Victoria Island, Lagos. The firm has tax liabilities in excess of N540 million. Its top officials were said to be unavailable when the office was sealed at 1:30pm.

    The same fate befell Sirius Energy Resources, located at 209 Muri Okunola Street. The firm owed N11million in taxes. Holding  a Warrant of Distraint letter, Erinne told a female employee in the firm’s administrative department to inform workers to vacate the premises within 10 minutes.

    The enforcement team visited NICON Hotel at the Victoria Garden City after it was informed that Global Fleet, a tax-defaulting firm owned by Mr. Jimoh Ibrahim, was operating from there. But the hotel was not sealed. This was after Ibrahim came out to explain to  the team, which wanted to lock up its premises, that Global Fleet is currently being managed by the Assets Management Corporation of Nigeria (AMCON).

    “AMCON has taken over for now and there is a court order on that. As soon as it is waived, after we have resolved with AMCON, we will call you concerning liabilities,” Ibrahim told the FIRS team. Ibrahim also insisted that Global Fleet operates from its Marina headquarters and not the NICON Hotel. At TSL Logistics Limited, located at 1 Coker Road, Ilupeju,  a worker of the firm put up a spirited effort to persuade the team not to seal the office. The man, who identified himself as Mr. Wale, said the firm was not owing the N724million ascribed to it by the FIRS, given that it submitted a credit note of N211million to the FIRS office yesterday. Erinne, however, insisted that the document from her office indicated a tax debt of N724million and ordered the office sealed at 4.25pm.

  • N11b debt: AMCON takes over Ben Bruce’s firms

    N11b debt: AMCON takes over Ben Bruce’s firms

    The Asset Management Corporation of Nigeria (AMCON) yesterday took over the assets of three firmss belonging Silberbird Group – the famiily firm of Senator Ben Murray-Bruce (Bayelsa East).

    Affected are Silverbird Galleria Limited, Silverbird Promotions Limited and Silverbird Showtime Limited. They are  located in Lagos, Abuja andPort Harcourt.

    The Lagos’ property is located at 133 Ahmadu Bello Way, Victoria Island; Abuja’s property is at Plot No 1161 (Silverbird Galleria), Central Area Cadastral Zone Apo, while Rivers’ is on Abonnema Wharf Road and Abali Park in Port Harcourt.

    The takeover followed interim orders granted by Justice Cecilia Olatoregun-Ishola of the Lagos Federal High Court on June 17, which allowed the receiver and manager to take possession of the affected firms.

    Agents of AMCON’s Receiver/Manager arrived at the firms in the early hours of yesterday in company of security operatives to take over the properties. Workers were prevented from entering the affected firms’ premises before they were locked up.

    According to AMCON, Senator Bruce, using his firms in 2005 and 2007, borrowed various sums of money from the Union Bank of Nigeria Plc and defaulted in his obligations to pay back.

    AMCON bought over the loans from the bank and reached agreement with Senator Bruce on repayment. But the lawmaker could not make up the debt with AMCON, prompting the takeover.

    Counsel to the Receiver/Manager, Kunle Adegoke, said Senator Bruce’s loan was purchased by AMCON in 2011 after the capital base of Union Bank was “terribly shaky”. He said the lawmaker “persistently failed” to pay the loans.

    Adegoke denied that AMCON’s action had political undertone, saying the takeover of Silverbird properties was legal and in line with mortgage laws.

    He said: “Aside that the receivership was done pursuant to deeds of legal mortgages duly executed by the three companies and guaranteed by Mr. Ben Murray-Bruce and four of his brothers, there is a court order backing same up.

    “It must be borne in mind that innocent depositors’ money is what Mr. Murray-Bruce and his brothers have been living large and feeding fat upon without recourse to the interest of the real labourers who own the money.”

    Reacting to the development, Senator Bruce said he was on international transit when he got the news of the takeover. He expressed his resolve to remain composed, saying the development was not unusual for a business that has been in existence for over three decades.

    Reacting to the development on Twitter, he said: “In 36 years, Silverbird has grown and like anybody, it will face challenges; tough times don’t last. But we, as tough people, outlast them.

    “I have been on an international flight and have only just landed. The situation is being resolved and things will be back to normal.”

  • NDIC to recover N17.6b Fortune Bank debt

    NDIC to recover N17.6b Fortune Bank debt

    The Nigeria Deposit Insurance Corporation (NDIC) has filed a debt recovery suit against former chairman of defunct Fortune Bank Plc, Mr Henry Adawari MacPepple, at the Federal High Court in Lagos.

    NDIC, which is the bank’s liquidator, said an oil firm, Suffolk Petroleum Services Ltd, a member of Adamac Group of Companies owned by MacPepple, owes the bank N17,632,119,929.44.

    It said the N17.6billion included outstanding balance on the principal loan sum, crystalised guarantees and accrued interest.

    According to the corporation, efforts to reconcile the accounts with the debtor was unsuccessful, hence the debt recovery action.

    NDIC had, last November 9, obtained an ex-parte order restraining Suffolk Petroleum and MacPepple from alienating, assigning, leasing or dealing with their movable and immovable properties pending the hearing of the motion on notice for interlocutory injunction.

    The court also restrained them and their agents from withdrawing or dissipating any monies standing to their credit in all banks until the motion for injunction is determined.

    All the financial institutions were ordered to furnish NDIC with the respondents’ account details and sums standing to their credit.

    During proceedings yesterday, respondents’ counsel Mr. A.N. Udebe said he was in the process of filing his clients’ response to the suit.

    Justice Mojisola Olatoregun-Ishola expressed displeasure at the respondents’ delay. She awarded punitive cost of N250,000 against them.

    Addressing Udebe, she said: “I gave you a date for trial (on April 15) and you had to wait till now to file your processes. Why have you not filed before now? I will adjourn at your instance. I award a cost of N250,000, which is to be paid to the court, not to the plaintiff.”

  • Fayose, APC trade accusations over Ekiti debt profile

    Fayose, APC trade accusations over Ekiti debt profile

    •Party urges DMO to clarify state’s liability

    Ekiti State Governor Ayo Fayose and the All Progressives Congress (APC) have disagreed over the state actual debt profile.

    The governor alleged that the N25 billion bonds taken from the capital market and N31 billion commercial loans taken by the Kayode Fayemi administration were responsible for his inability to pay workers’ salaries.

    But the APC, while admitting that its administration led by Dr. Fayemi took the N25 billion bond to execute legacy projects, described Fayose’s allegation of taking another N31 billion commercial loan as a “blatant lie which is far from the truth”.

    The party called on the Debt Management Office (DMO) of the Federal Ministry of Finance to speak out and clarify Ekiti’s debt status.

    The APC, in a statement also yesterday by its spokesman, Taiwo Olatunbosun, said a clarification from DMO has become imperative.

    The statement accused the governor of “giving inconsistent figures on different occasions that had cast doubts on the integrity of the state’s financial application.”

    Fayose, in a statement yesterday by his Chief Press Secretary, Idowu Adelusi, alleged that N1.2 billion is being deducted monthly from the state’s allocation to service loans obtained by the Fayemi administration.

    He accused the APC of “gingering Labour to remain adamant on the issue of strike”.

    The governor claimed that if the N1.2 billion being deducted is added to the state’s monthly allocations, his administration will not owe workers.

    Fayose said he was surprised that when Fayemi took the loans, which allegedly made payment of workers’ salaries difficult, the labour did not kick against the move.

    The governor alleged that the strike had been politicised because of his “criticism of the bad policies of the Federal Government and his fight against tyranny”.

    He wondered why some states where workers were owed more salaries than Ekiti were still enjoying the understanding of labour.

    Fayose accused the Fayemi administration of inflating figures of the monthly Internally Generated Revenue (IGR) for “political reasons and giving the labour wrong information and false hope”.

    “A state like Ekiti without any industry and Fayemi administration would post that it realised between N600 million and N700 millio0n monthly from IGR whereas in the actual sense Ekiti IGR had never gone beyond N300 million or N350 million monthly,” the governor said.

    Fayose said he was surprised that the labour, which praised him for transparency, was now blackmailing him as if he had kept Ekiti money somewhere.

    “The labour should hold the Fayemi Administration responsible for the economic woes in the state and stop castigating me,” Fayose said.

    He said: “During my first term, I did not borrow a dime to run the state. I paid salaries on 22nd of every month. When I was going in October 2006, I left N10.4 billion in government coffers.

    “As a responsible governor, the state cannot be financially buoyant and I will refuse to pay the workers. A child cannot ask a good father for fish and the father will give him stone. I have been sounding the warning about the nation’s economy since last year.”

    The governor explained: “For the N25 billion bond Fayemi took from the capital market, the state pays over N600 million monthly to service it and we will pay till 2022.

    “On the bond money, there is an irrevocable standing order for the monthly deductions; the Federal Government has no power over that. It was the commercial loans they took that were converted to bail-out funds by the Federal Government and we pay over N300 million to service the debts monthly and that will subsist till 2036.

    “Also, they left debts on fertilser, vehicles purchased for different reasons and groups and other commitments for which over N100 million is deducted from our monthly allocation. If these funds are not deducted and we have them at hand, our situation would have been better than this.”

    Denying Fayose’s allegations, Olatunbosun said: “In a programme he appeared on Nigerian Television Authority (NTA) recently, he put the deductions at N1.5 billion. But again few days later on Africa Independent Television (AIT), he said the figure is N600 million. We make bold to say that Fayose’s claim of N1. 2 billion deduction from Ekiti monthly allocation is total fallacy and Fayose’s creation to justify his inability to pay workers’ salary.

    “How he spent the bailout was not clear because he collected the bailout cash of N9.6 billion at the time Ekiti was owing only one month salary, which he falsely quoted at N2.6 billion and so how he spent N9.6 billion to pay a month salary remains unclear.”

    Accusing Fayose of “deliberate and malicious misrepresentation of facts”, he challenged him to produce in writing, the purported commendation he received from the EFCC and the ICPC over the N9.6 billion bailout fund he is yet to account for.

    On Fayose’s claim that the Fayemi administration borrowed another N31 billion commercial loan apart from the N25 billion bond, Olatunbosun challenged Fayose to provide evidence of this loan and what it was used for “since records are there in the office of the Account General if he is sure of his facts”.

    “The truth of the matter is that Fayose has resorted to blatant lies to cover up his many shady financial transactions and misapplication of state funds,” the APC spokesman said.

    On Fayose’s allegation that the IGR of the state was never N600 million during the Fayemi administration, Olatunbosun referred him to the published audited accounts of the state signed by the then Auditor General “instead of persistent lies to cover up his financial recklessness which accounted for his inability to pay workers.

    Urging the governor to present the schedules of payments as he claimed for public scrutiny, the APC spokesman said it was not enough to deceive the public that he always presented federal allocation receipts to workers to see first-hand the financial status of the state.

    He added that actual monthly receipts and myriads of unbearable taxes imposed on Ekiti people and pupils in primary schools did not support his claim of cash squeeze.

    He said: “Fayose only wants to confuse Ekiti people with the ‘more you look, the less you see’ analysis of the financial position of the state that has become his trademark.”

    “On his claim that he left N10 billion in Ekiti coffers during his aborted first tenure, this is a lie that has been debunked many times.

    “Fayose, who is an advocate of governments not borrowing beyond their tenure and vowed on his inauguration in 2014 not to borrow kobo during his tenure, has already borrowed N19.6 billion, which deduction is obviously beyond his tenure, thus showing his insincerity and demagoguery, Olatunbosun said.

  • Much ado about airlines’ debt recovery

    Much ado about airlines’ debt recovery

    The picketing of Arik Air’s flight operations by aviation union workers for alleged N12.5 billion debts has sparked a controversy in the sector, KELVIN OSA OKUNBOR reports 

    Arik Air did not see it coming. Last Wednesday was a day it looked forward to. Tickets had been sold. Passengers looked forward to their trips. Unknown to the airline, workers were out to ensure its flight operations were stalled.

    The National Union of Air Transport Employees (NUATE), the Air Transport Services Senior Staff Association of Nigeria (ATSSSAN) and the Nigerian Union of Pensioners (NUP), said they disrupted the operations of Arik Air at the General Aviation Terminal (GAT) of the Murtala Muhammed Airport, Ikeja, Lagos over  N12.5 billion debts. Many Arik Air passengers  cancelled their trips. Business appointments and meetings had to be cancelled too.

    The unions said Arik Air’s failure to pay the debts has incapacitated the Federal Airports Authority of Nigeria (FAAN) and made it unable to meet its obligations to employees and pensioners.

    To Arik Managing Director, Mr Chris Ndulue, the disruption is unfortunate.

    He said: “When the revenue drive was ongoing and our operations were grounded, we tried to reach the management of FAAN via phone calls and they did not respond and even text messages and up till now we are speaking they have not responded.

    “It is curious, why is it only Arik, others are owing even some foreign airlines but why Arik? The figures they bandy about sometimes its N7b or N11b or like yesterday N12.5b.”

    Although the management of FAAN has remained silent on the action by the unions, aviation experts say its continued silence may be mistaken for a tacit approval.

    An operator, who declined to be named, said though it was wrong for any airline to owe, using labour union members to recover debts is laughable in a globally regulated industry like aviation. He accused union members of taking the law into their hands in a matter that is before the court.

    The Airline Operators of Nigeria (AON), a source hinted, may withdraw service in solidarity with Arik Air to express disenchantment over how FAAN is allegedly using labour unions to armtwist airlines.

    A lawyer, Emeka Nwigwe from Babajide Goku Chamber, said what the unions did  was an affront to the Federal High Court.

    Nwigwe said: “It is an affront  to the Federal High Court and the state. A situation where staff, whether individual or group, decide to turn themselves into debtor collecting agency is absurd.

    “FAAN has no documents to back their claims; they simply resorted to intimidation. The case is in court. FAAN’S action is contemptuous. The law is very clear; no party should take anticipatory action when a case is pending.”

    He added that FAAN took the matter to court last year but that it seemed it was not able to satisfy the court why Arik’s airplanes should be arrested.

    Arik Chairman Sir Johnson Arumemi-Ikhide said the airline had paid FAAN N18.9 billion from its inception.

    Arumemi-Ikhide frowned at the way the unions took the airlines by surprise while alleging that FAAN had been frustrating the reconciliation process initiated by both the court and past aviation ministers.

    “We have paid N18.9billion and we are saying that we need to reconcile. FAAN was the one that took us to court and are the ones that are not respecting court judgment. And anytime we want to reconcile these debts and get to the bottom of this matter once and for all, they (FAAN) become evasive.

    “We are prepared to pay for services rendered to us but we are not going to be bullied into false payment.  And when they feel like, they resort to intimidations. They took us to court and said they will impound our aircraft later rescinded but what happened yesterday was quite unfortunate. It is not good for aviation and not good for Nigerian industries.”

    Arumemi—Ikhide recalled how efforts were made to resolve the dispute by the Senate Committee on Aviation, headed by Senator Hope Uzodima, former Aviation Minister Mrs Stella Oduah and former Permanent Secretary, Ministry of Aviation, Mrs Binta Bello.

    He added that while the matter was there, FAAN allegedly asked the committee to give it two weeks, adding that after that it asked for four weeks and finally stopped coming.

    He said:” FAAN took us to the committee two years ago. FAAN, which initiated the moves to reconcile the accounts, is not ready for reconciliation. We have been reminding them that we want to reconcile the account so that we can move forward.”

    The Chairman said Mrs Bello told him that any claim or claims not backed with documentary evidence should be considered null and void.

    For its inability to operate flights on that day, Arik Air led a protest to the Ministry of Transportation to express its disenchantment over what its Managing Director, Mr Chris Ndulue, described as FAAN’s affront on legal procedure.

    The airline’s team was received by Minister of State, Aviation, Senator Hadi Sirika.

    At the end of the parley, Sirika gave a two-week ultimatum to FAAN, the Nigerian Airspace Management Agency (NAMA) and Arik Air to resolve all indebtedness issues and report back to him.

    The two weeks ultimatum, it was learnt, is to enable feuding parties reach resolution on the amounts owed, payment plans and others.

    The minister noted that airline operators must conform to industry rules and regulations, including payment of applicable fees and fines

    Sirika said the well-being of an airline is measured by its ability to pay for services rendered it.

    The amicable resolution of the rift may be far judging by a communiqué obtained by The Nation issued after a meeting between the feuding parties.

    The content of the communiqué has raised more questions than answers. In it, Arik Air and the unions agreed that revenues services rendered to the airline from September 2015 till date at the Murtala Muhammed Airport(MMA), Lagos would be reconciled within two weeks by the airline and unions in the presence of the police and officials of the Department of State Services (DSS)

    The communiqué also noted that the union would give Arik prior 14 days’ notice before disrupting its activities in future.

    The communiqué was signed by Arik Managing Director Chris Ndulue, NUATE General Secretary Olayinka Abioye, President, National Union of Pensioners (NUP), Ope Rasaki and others.

    The communiqué reads: “That all revenue services rendered to Arik Airline from September 15, 2015 till date at the Murtala Muhammed Airport (MMA), Lagos shall be reconciled within two weeks from the day by a team of Arik Airline staff and FAAN staff with NPF, SSS and the unions’ representatives in attendance.

    “Arik Airline shall go immediately to confirm from their accounts department, agreed bills by Arik for services rendered by FAAN to Arik Airline from September, 15, 2015 till date and pay same before the conclusion of the reconciliation of the disputed bill.

    “It was also agreed that 14 days’ notice should be served to Arik Airline in case of future aviation workers/union action.”

    It was learnt that this communiqué covered only revenue in Lagos, such as landing charges, electricity, service recovery charge and rent.

    A new twist emerged when the chairman of the airline said he had resolved

    that the airline would not be bullied into any form of arbitrary payment.

    He alleged that the airport authority brought an electricity bill of over millions for a month and that since Arik started using the prepaid card, its monthly electricity bill has been less than N700,000 monthly.

    This, he said, raised questions on the template used for generating electricity bills by FAAN.

    He also said that the airline pays Passenger Service Charge to FAAN but still ferries its passengers to the aircraft from the terminal. According to him, so many other things have to be reconciled.

    Arumemi-Ikhide recalled an incident in Calabar where a man broke in and rammed his car into Arik’s aircraft, adding that he was aware that FAAN had paid damages to foreign airlines but had not talked about compensating it for the incident.

    In a matter of days, the deadline set by the minister for the reconciliation of the dispute will be over but it remains doubtful if that will mark the end of the crisis.

  • Fed Govt urges China to reduce debt burden

    Fed Govt urges China to reduce debt burden

    The Federal Government has appealed to the Chinese government to blend its grants with loans to reduce debt burden on the country.

    Speaking at the China-Nigeria Economic and Trade Cooperation Forum in Abuja yesterday, the Minister of National Planning and Budget, Senator Udoma Udo Udoma said current Chinese efforts in assisting Nigeria are commendable. He said the government would like to ask for more support to help turn the economy around.

    He said the intervention of the state-owned Chinese firms, such as the Chinese Civil Engineering Construction Company (CCECC) can adopt a funding option that blends grants with loans to reduce debt burden repayment.

    A major constraint to business development in Nigeria, Udoma lamented, is infrastructure which is contained in the new China-Africa plan announced by President Xi JinPing during the Johannesburg summit.

    Udoma said: “More can still be done by our partners in terms of grant support to infrastructure; we also believe that the Chinese private sector can improve on the areas of technology, agriculture and solid minerals.”

    The government tried to woo the Chinese investors present at the forum, by stating: “Nigeria is open for investors and we have attractive incentives, our tax policies are investor-friendly; the current administration is committed to addressing the inhibiting factors including corruption that cripple business environment; our target therefore is to make Nigeria the preferred destination for investment in Africa.”

    He said Chinese businessmen can benefit from opportunities from these incentives noting that Chinese direct investment in Nigeria stood at $2.5 billion last year. In specific terms, the China EXIM Bank has been very supportive of Nigeria’s development, the bank advanced a concessionary loan of $1.1 billion to support infrastructure development in the country and more than 200 Chinese companies are currently in Nigeria in various areas of the economy.

    In his address, the Economic and Commercial Counsellor of the Chinese Embassy, Zhao Linxiang, said during President Muhammadu Buhari’s stay in China next month, “the two leaders will further discuss on how to fully implement the fruits of the summit including the 10 major cooperation plans and relevant financing arrangements and how to carry them out into projects which are conducive to Nigerian economic development.”

    Speaking for the Chinese private sector, Vice President, Huawei West Africa, Mr. Cao Aijun, said: “In Nigeria, Huawei will continue to employ an open approach, remain trustworthy and dedicated, build partnerships, and constantly reflect on our work while sharing success with our customers.

    “Huawei will continue to comply with local laws and regulations, ensure workforce and employment compliance, pay taxes, proceed with our localisation efforts, and develop the industry ecosystem with our local partners. To fulfill its corporate social responsibilities, Huawei will actively implement our talent development programme in collaboration with the Federal Government to boost employment.”

  • Debt service to revenue ratios: matters arising

    Debt service to revenue ratios: matters arising

    The federal and state governments spent 28.1 per cent of their combined N6.32 trillion revenue for 2015 on debt service. The figure, expected to rise marginally to 35.32 per cent this year, is far below the 80 per cent statistics given by the Islamic Development Bank. COLLINS NWEZE writes on the need to sustain healthy debt service to revenue ratios across all tiers of government.

    Nigeria expects to spend 35.32 per cent of its revenues servicing debt this year, up from 28.1 per cent for both federal and state governments in 2015, the Debt Management Office (DMO) has said.

    The two-year debt service ratios released by the debt office showed that of the N6.32 trillion combined revenues for state and federal governments in 2015, only 28.1 per cent went to debt service in 2015. However, the figure will rise marginally to 35.32 per cent of the N3.85 trillion revenue for the Federal Government alone, this year.

    These figures by the debt office have put to rest claims by the Islamic Development Bank (IDB) that the country spends about 80 per cent of its revenue to service debt.

    The IDB Country Representative in Nigeria, Mumammed Kiliaki, ranked Nigeria among the countries using the largest percentage of its revenue to service foreign debts. He declared that Nigeria spent 80 per cent of her revenue on debt servicing.

    Kiliaki, who spoke during an interaction with Senate Committee on Local and Foreign Debts, headed by Senator Shehu Sani, said the development was responsible for the bleeding of the economy.

    He said though Nigeria’s debts to Gross Domestic Product (GDP) ratio is low at 17 per cent, adding that the resources being used to pay the debts were enormous. He said for Nigeria not to get itself suffocated by such huge debt servicing profile, there was the urgent need for the country to expand the scope of its resources through diversification of the economy.

     

    Debt profile

    Nigeria’s total debt increased to N12.60 trillion ($65.42 billion) as of December 2015, up from N11.2 trillion in 2014, the DMO announced. In  a statement on its website, the DMO said foreign bonds and loans stood at $10.7 billion or N2.1 trillion at the end of December, equivalent to about 16 per cent of total debt and up from $9.71 billion at the end of 2014.

    It also disclosed that domestic debt rose to N8.83 trillion last year, up from N7.9 trillion in 2014. DMO added that domestic debt of states stood at N1.65 trillion or $9.85 billion. The DMO’s statement comes on the heels of announcement by the African Development Bank (AfDB) that Nigeria had requested for a loan of $1 billion to help fund its budget deficit for 2016 fiscal year.

    The Federal Government has said it is planning to borrow as much as $5 billion to help fund the expected deficit of N3 trillion in 2016, which is up from an initial N2.2 trillion estimate.

    Minister of Finance, Mrs. Kemi Adeosun, disclosed that  Nigeria held talks with the World Bank and was considering options to borrow from the AfDB and China Exim Bank.

    Adeosun said about $4 billion might come from international institutions and the balance from Eurobonds.

    In December, President Muhammadu Buhari presented a N6.08 trillion budget for  the year to the National Assembly, an increase from N4.4 trillion for 2015, which the government hopes will help tackle an economic crisis triggered by the plunge in oil prices.

    However, the DMO Director-General, Dr. Abraham Nwankwo, insisted that the country’s public debt-to-GDP remained sustainable despite the slump in crude oil prices. According to him, while other countries base their borrowing on debt- GDP ratio of 56 per cent, Nigeria will not exceed 19.39 per cent until 2017.

    He said: “Our debt continues to be sustainable, despite all these volatilities in the international capital market and the collapse of oil prices. However, it does not mean that Nigeria should go and sleep, and hope that providence will continue to provide for them.”

    He noted that the country has abundant resources in agriculture, solid minerals, Information Communications Technology (ICT), among others, that offer ample opportunity for diversification of the economy to boost revenue.

    It will be recalled that during her visit to the country last month, the Managing Director of the International Monetary Fund (IMF), Christine Lagarde, said given the determination and resilience so far displayed by Buhari and his team, Nigeria does not need any loan from the Fund.

    She stated that though Nigeria did not need IMF loan, fiscal discipline was needed for the country to be sustainable.

     

    Debt servicing

    Data from the DMO showed that the total external debt service payment for the year 2004 was $1.75 billion compared to $1.81 billion in 2003, reflecting a decrease of $0.054 billion or 3.01 per cent. The external debt service payments of $1.75 billion comprised of principal repayments of $1.17 billion, and interest payments and commitment charges of $0.589 billion.

    Payments to the Paris Club creditors took the lion’s share amounting to $0.994 billion or 56.67 per cent. $0.487 billion or 27.77 per cent was paid to multilateral institutions, $0.090 billion or 5.14 per cent to London Club, $0.171 billion or 9.76 per cent to the Promissory Note holders and $0.012 billion or 0.66 per cent to non-Paris Club Bilateral creditors.

    “The $1.75 billion debt service paid in 2004 is actually well below the debt service due for the year of $2.99 billion. This arises from the fact that Nigeria has not fully serviced its Paris Club debts, as an amount of $2.23 billion was due while only $0.99 billion was paid. The shortfall transforms into arrears and attracts severe penalty interest. This very process has contributed to the explosion in Nigeria’s external debt stock over the years,” the debt office said.

     

    DMO’s monthly auction

    A report by FBN Quest, an investment and research firm, said the DMO’s monthly auction of FGN bonds last Wednesday raised its target of N100 billion from the sale of three issues including a new 20-year benchmark. The total bid of N262 billion was highest since July 2014 when the DMO launched a new long bond.

    The firm explained that the figure was no coincidence since the Pension Fund Administrators (PFAs) have a healthy appetite for long-term assets to match their liabilities. The prevailing abundance of liquidity, it said, would equally have fuelled demand. The DMO can also be pleased with the downward monthly trend in marginal rates.

    The cut-off point of 12.40 per cent for the new March 2036 compares with that of 12.15 per cent for the previous benchmark (the July 2034).

    The FBN Quest explained that since inflation has picked up by three percentage points in the intervening period and since offshore interest has evaporated, the DMO should be pleased with the new effective coupon on the instrument.

    It demanded that the 2016 budget should be approved well before the next auction, which would give the DMO a better platform for its issuance calendar for June, this year.  The Federal Government’s budget proposals project net domestic issuance this year of N950 billion. The onus falls upon the DMO since the CBN’s sale of treasury bills is likely to remain flat.

    In 2004, the DMO made plans to build on the success of the first FGN Bonds floatation that were first issued in 2003. The DMO embarked on the arrangements to commence the issuance of bonds on a regular basis in small tranches that the market could accommodate.

    The DMO commenced the smoothening and restructuring of the Treasury Bills in 2004. The restructuring entailed extending the maturities of the existing Treasury Bills by issuing tenors of six, 12, 24, and 36 months, to refinance part of the existing 91-day Treasury Bills.

    The Nigerian Bond market remained undeveloped, particularly the secondary market for government securities and the DMO put in place a framework for the development of a vibrant secondary market.

    The DMO was established on October 4, 2000 to centrally co-ordinate the management of Nigeria’s debt, which was hitherto being done by a myriad of establishments in an unco-ordinated fashion. This diffused debt management strategy led to inefficiencies.

    It was expected that the coming of DMO would lead to good debt management practices that make positive impact on economic growth and national development, particularly in reducing debt stock and cost of public debt servicing in a manner that saves resources for investment in poverty reduction programmes.

    The body is also expected to prudently raise financing to fund government deficits at affordable costs and manageable risks in the medium and long term; achieve positive impact on overall macro-economic management, including monetary and fiscal policies; avoid debt crisis and achieving an orderly growth and development of the national economy.

     

    Lagos IGR example

    CBN data for 2014 revealed that internally generated revenue (IGR) provided 21.8 per cent of the total revenue of the 36 states and the Federal Capital Territory, compared with 15.3 per cent the previous year.

    Aggregate IGR grew by 37 per cent to N801 billion from N586 billion in 2013. Again, Lagos emerged as the leading state achieving an IGR/total revenue ratio of 67 per cent while Ogun, Rivers and Anambra managed 40 per cent, 32 per cent and 31 per cent respectively.

    The report said given that the oil price has been on the slide since mid-2014, states have no choice but to reduce their dependence on the oil-driven monthly distributions from the Federation Account Allocation Committee (FAAC) by bolstering their IGR.

  • $64b debt profile comfortable, says DMO D-G

    There is no cause for alarm over Nigeria’s $64b debt profile,  Debt Management Office (DMO) Director-General Dr. Abraham Nwankwo said yesterday.

    Nwankwo said the country’s $64b debt profile is 84 per cent internal and 16 per cent external.

    He said the country can afford to borrow $25 billion annually for the next 10 years.

    Nwankwo, who spoke when he appeared before Senate Committee on Local and Foreign Debts, said: “We have been sensitising Nigerians that we need to do better because our tax- Gross Domestic Product (GDP) ratio is very low compared to countries in our debt role.

    “Their entire GDP ratio is about 18 per cent whereas for Nigeria, it is about 6 per cent, which means that we are not being effective in collecting taxes to reflect the size of our economy.

    “This has implications for debt service. Certainly there is the need to be careful even though there is space we need to relate debt service to revenue. The solution is that we have a big gap to fill because when we move upward from the 6 per cent tax-GDP ratio, we will have a lot of money to solve our problems including servicing our debts.

    “For now our debt servicing-GDP ratio is still very low, but we are optimistic because there is room to collect tax from the existing level of economic activities.”

    Nwankwo also justified the loans taken by the country, saying repayment period for most of the loans is spread for 40 years.

    The Senate committee expressed concern about the use of borrowed funds at the meeting. It said the Federal Government should take any form of misapplication of borrowed funds seriously.

    A member of the committee, Senator Philip Gyunka (Nasarawa North), demanded to know how the loans obtained by the country are applied and whether they were applied for the purposes they were sourced.

    Gyunka noted that he believed that if the facilities were applied for the purposes they were obtained, the country would have been better.

    He noted that instead of applying the loan judiciously, some of them were misapplied without punishment being meted to those involved.

    The lawmaker said the present generation of Nigerians must not allow a situation where the upcoming Nigerians would accuse the older generation of mortgaging their future.

    Gyunka also frowned at the situation where the solid mineral sector of the country is left untapped.

    According to him, the government should take the issue of diversification seriously in the interest of the development of the country, insisting that the debt profile of the country is low.