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Tag: DMO

  • Reps seek powers for DMO to monitor debt-financed projects

    Reps seek powers for DMO to monitor debt-financed projects

    The House of Representatives’ Committee on Aids, Loans and Debt Management is seeking more powers for the Debt Management Office (DMO).

    The House Committee said the mandate of the DMO should be strengthened to include monitoring the implementation of all projects of government that is financed with borrowed funds.

    Committee Chairman Adeyinka Ajayi stated this at a three-day retreat for member of the committee in Owerri, the Imo State capital at the weekend.

    Ajayi, in his keynote address said: “The body should be saddled with the responsibility of monitoring implementation”, noting that this would ensure compliance, transparency and accountability.

    The Committee said the retreat, whose theme was: Debt Sustainability and the Challenge of Financing Economic Recovery, was timely, coming at a time the nation was facing some economic challenges.

    Ajayi said the workshop is coming on the heels of concerns expressed by some Nigerians over the rising debt profile of the nation. While acknowledging the prevailing economic challenges, the House Committee Chairman said the committee will work with the Debt Management Office to ensure effective implementation of the 2016 budget.

    Director-General of the DMO, Dr. Abraham Nwankwo, restated government’s commitment to financing capital projects aimed at addressing Nigeria’s huge infrastructural deficit and repositioning the economy.

    The DMO boss who spoke against the backdrop of the agency’s role in the implementation of the 2016 budget, said the nation’s long term debt financing of sustainable economic recovery and growth is feasible given its abundant ideal economic capacity.

    Dr Nwankwo told members of the Committee that the administration of President Muhammadu Buhari has taken a bold step to stimulate the economy by making sure that the nation’s huge infrastructure gap was quickly closed through efficient and effective application of all borrowed funds into capital projects.

    Other members of the House Committee on Aid, Loans and Debt Management emphasised the need for the diversification of the economy especially in the areas of Agriculture, Solid Minerals and Manufacturing.

  • DMO: Fed Govt to borrow N1.84tr to fund 2016 budget

    DMO: Fed Govt to borrow N1.84tr to fund 2016 budget

    The Federal Government is set to borrow N1.84 trillion from external and domestic markets to finance the 2016 budget, the Director-General, Debt Management Office, DMO, Dr. Abraham Nwankwo has said.

    According to him, the government will borrow N900billion and N984 billion from the external and domestic markets to fund the budget.

    Speaking during a workshop on Debt sustainability and the challenge of financing economic recovery by the DMO for the Nigeria Union of Journalists (NUJ) in Abuja, at the weekend, Nwankwo said the challenge of infrastructural development and economic recovery are enormous; therefore, the imperative of the government to seek for alternative funding of which debt sourcing was an integral part.

    He urged the media to key into the government’s debt management policy.

    The DMO chief observed that the media has a critical role in informing Nigerians of the importance of debt financing in economic development especially with declining oil and gas revenue being faced by the country and around the globe.

    He said Nigeria’s debt-to-Gross Domestic Product (GDP) ratio as at December last year was at 13.02 per cent, which he said was far below the peer group ratio of 56 per cent.

    Explaining further, Nwankwo said the logic of the mix— external and domestic borrowings, is “to rebalance total public stock in favour of less costly external funds,” while stressing that “the utilisation of the borrowing proceeds are entirely on capital projects to support the growth of productive capacity.”

    He said to address the huge infrastructural deficit in the country effectively, the funding implications for Nigeria is about $25 billion per annum over the next five to seven years.

    The worry in the funding of such huge infrastructural challenge, the DMO said, lies in private sector equity and debt, which he explained is uncertain as well as public sector revenue and debt which has been adversely affected by declining oil revenue.

    To address the imbalance, he said: “The imperative is to depend on well structured, substantial, affordable, long-term external debt financing to fund the desired long-term economic change.”

    Nwankwo urged the leadership of the NUJ to engage its members to explain the desirability of public debt financing to Nigerians.

    NUJ President, Mr. Waheed Odusile, commended the DMO for the workshop, which he described as timely and educating, urging the office to expand its enlightenment to other critical stakeholders.

    Odusile promised that the union would continue to engage with the DMO in order to help pass on the appropriate information on the activities of the office and the importance of debt financing for the country’s development needs.

     

  • Getting Nigeria out of the woods

    Getting Nigeria out of the woods

    How can Nigeria get out of the woods? It is through debt option – borrowing to finance capital projects – says the House of Representatives Committee on Aid, Loans and Debt Management. The panel wants the Debt Management Office (DMO) to pursue that option in the face of falling oil price. COLLINS NWEZE writes.

    The falling oil price is affecting the Federal Government’s ability to discharge its obligations. Oil revenue accounts for about 85 per cent of Nigeria’s earnings.

    During a visit to the Debt Management Office (DMO) the House of Representatives Committee on Aid, Loans and Debt Management said the DMO has a vital role to play on getting the country back on economic track. The panel noted that with debt option – borrowing to fund capital projects – the government would be able to fulfil its obligations.

    The panel Chairman, Adeyinka Ajayi, described the debt office as the engine room of the economy, adding that it is expected to come up with sustainable debt management models for the country.

    He said the DMO initiatives have often prevented the economy from going into recession, noting that with the prevailing challenges, the DMO is again, expected to play a pivotal role in steering the economy out of trouble.

    DMO Director-General Dr. Abraham Nwankwo said the committee’s disposition to its activities showed it has a grasp of how a well structured debt can galvanise the economy.

    He said more information would, on regular basis, made available to the people on what benefits that come from borrowing to fund capital projects.

    Nwankwo also stressed the need for Nigerians to face the reality that oil boom was over and may not reoccur anytime soon – by making wise decisions to invest in infrastructure, revamp agriculture, improve power supply and focus on the real sector. This, he said will make the economy more productive and competitive.

    Nwankwo recounted the background to the DMO’s establishment and outlined its achievements since its inception.

    He reviewed the successes recorded by the debt office in revamping the hitherto moribund Domestic Debt Market and the successful launch of the Nigerian flag in the International Capital Market with its debut 500 million USD Eurobond issuance in 2011 and subsequent issuances in 2013 to raise funds towards financing the deficits in the national budget.

    Dr Nwankwo said the DMO assisted the 36 States of the Federation and the FCT to establish their own Debt Management Departments (DMDs) and the fiscal stabilisation intervention of the DMO which led to the restructuring of the debts owed to banks by some states into long tenured bonds.

     

    Fundamentals of 2016 budget/ funding plans

    Despite the slide in oil revenues, the Federal Government is proposing an expansionary fiscal policy in 2016 in a bid to boost the economy through investment in key infrastructure and social welfare spending. Thus, a total expenditure of N6.1 trillion for the year 2016 budget, 20.2 per cent jump relative to the N5.1 trillion budgeted in 2015.

    Dr Nwankwo said Nigeria’s low debt to Gross Domestic Product (GDP)  ratio means the country can borrow more to fund budget, infrastructure and other essential projects that will stimulate the economy and create jobs for the citizenry.

    Data obtained from DMO shows that Nigeria’s domestic and external debt stocks currently stand at N12.11 trillion as at June 30, 2015 which also puts the country in a good stead to borrow more.

    Regarding foreign debt, the strategy is to borrow on non-concessionary terms for projects with self-paying capacity and/or job creation potential, and on concessionary terms and grants for social sector projects.

    Experts believe that with the continued slide in government revenues from crude oil, its plan to provide tangible assets like housing, power (electricity), transport, education, communication, and technology, may be hampered by paucity of funds.

    To finance the N2.2 trillion deficit, Federal Government of Nigeria has proposed an increase in domestic and foreign borrowings to N984 billion (from N502 billion in 2015) and N900 billion (from N380 billion in 2015) respectively in 2016. The remaining N350 billion is anticipated to be financed using recoveries from misappropriated funds.

    Managing Director, Afrinvest West Africa Plc, Ike Chioke explained that to fund the budget, expected revenue is estimated at N3.9 trillion (up 11.8 per cent from N3.5 trillion approved for 2015 budget) while deficit is projected at N2.2 trillion (up 114.9 per cent  form the N1.0 trillion approved from 2015).

    He said the revenue projection is based on a crude oil price benchmark of $38.0/barrel, average daily production of 2.2mbpd and exchange rate of N197 to dollar. Oil revenue is thus expected to contribute N820 billion (21.2 per cent to total estimated revenue) compared to N1.6 trillion projected for 2015 budget and an actual figure of N981 billion as at September 2015.

    He said non-oil revenue comprising of Company Income Tax, Value Added Tax, Customs and Exercise duties and Federation account levies will contribute N1.5 trillion (up from N1.2 trillion assumed for 2015 budget and an actual of N606 billion as at September 2015).

    According to him, revenue from independent sources (operating surpluses of MDAs) would contribute the bulk of FGN’s retained revenue, estimated at N1.5 trillion (representing 39 per cent of total revenue projection) from N489 billion approved in 2015 and N401 billion actual in September 2015.

    The Director-General of West African Institute for Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo agreed with Dr. Nwankwo. He explained that with declining government revenues from oil, budgetary allocations alone may not be enough to finance the infrastructure deficit in the country.

    Prof. Ekpo admitted that the debt option is still the most viable at this time. He said Nigeria’s rebased  $510 billion Gross Domestic Product (GDP) economy gives it more room to borrow more to bridge infrastructure gap.

    For instance, Nigeria’s current available power generation capacity is about 4,000 megawatts, which is far less than the estimated demand of 10,000 to 12,000 megawatts. This has resulted in frequent and unpredictable load shedding and a heavy reliance on generators by consumers.

    With the current political will to tackle corruption and the desire to find a solution to the infrastructure problem in the country, analysts believe new funding is crucial. They insist on the need to channel fresh investments into power supply, roads, the railway and other social amenities.

    For Prof. Expo, Nigeria could borrow up to 40 per cent of its GDP externally, adding that the DMO has in the past, demonstrated good negotiation skills in dealing with the country’s debt matters, either with internal or external creditors.

    He believes the viable option for government to take is to borrow from the World Bank or African Development Bank (AfDB) to fund the key developmental projects.  Government can also borrow internally to achieve the feat, but disclosed that internal borrowing is always short term while external borrowing has longer tenor.

    Besides, the Nigeria Trust Fund with the AfDB can be used as leverage while borrowing form the bank, adding that borrowing from the International Monetary Fund (IMF) will be expensive because Nigeria is now classified as a Middle Income Country on the Fund’s list.

    Prof. Ekpo said the DMO has the capacity and constitutional role to advise the government on these choices and urged the debt office to see that over N1 trillion used for debt servicing is reduced with the reclaimed fund channeled to funding developmental projects.

    “The World Bank rates are cheaper with longer term. The DMO can also leverage on the Nigeria Trust Fund with the AfDB to get better deal on new loans needed to fund developmental projects,” he said.

     

    Lifeline for states

    A final report on the restructuring of banks’ loans to states into FGN bonds released by DMO said the decision was in line with President Muhammadu Buhari’s commitment to strengthening the economy.

    It said the government has attached high priority to addressing the fiscal imbalance faced by most states of the federation. The immediate cause of the fiscal imbalance was the structural drop in the international price of crude oil and the resultant drop in the revenue allocation from the distributable pool for all governments in the Federation.

    The DMO had last year, put forward a proposal for restructuring the short-term bank loans of states into long-term Federal Government of Nigeria (FGN) Bonds. The purpose was to reduce the debt-service outflow of states and free resources for meeting other obligations, particularly, clearance of arrears of salaries and pensions.

    The debt office said a total of 23 states had submitted requests for the bank loan-to-FGN bond restructuring. Phase I consisted of 11 states which had completed and submitted all necessary documen-tations, including the submission of jointly authenticated balances with banks. These states had their bank loans restructured into 20-year FGN bonds effective August 17, 2015. Phase II of the restructuring consisted of 12 states whose bank loans were restructured into 20-year FGN bonds effective September 16, 2015.

    It disclosed that the second phase, which concludes the restructuring exercise, showed that 14 banks were involved in phase I debt restructuring operation and their total loans to the 11 states which were restructured amounted to N322.788 billion.

    Also, 12 banks were involved in Phase II of the restructuring operation and the total loans restructured for the 12 states amounted to N252.728 billion bringing the total restructured amount for the 23 states to N575.516 billion.

     

    Other stakeholders speak

    Chioke said the financial market is currently going through a turbulent time, reflecting the intensity of instability in the global and domestic environment. For him, the slowing growth concerns in China and plunging commodity prices in the global market to fiscal and currency crises in the domestic economy, is a sign that a dark cloud seems to overshadow the investment landscape.

    He said the performance of the global economy in 2015 was largely dragged by growth concerns in China, tumbling commodity prices and monetary policy normalization in the US. “The cumulative effect of these factors is expected to further dampen the activities in emerging and frontier economies in 2016 as tanking commodity prices and strengthening dollar hurt output growth,” he predicted.

    Chioke said that on the contrary, lower commodity prices which has propped up savings and discretionary spending, supported by easy monetary policy is anticipated to bolster output growth across advanced economies.

     

     

  • DMO ‘ll rescue economy from meltdown, say Reps

    DMO ‘ll rescue economy from meltdown, say Reps

    Members of the House of Representatives Committee on Aids, Loans and Debt Management, has said that it is only through the instrumentalities of the Debt Management Office (DMO) that Nigeria can carefully come out of the looming economic crisis.

    The Chairman of the Committee, Honourable Adeyinka Ajayi, who yesterday led members of the committee on a familiarisation visit to the DMO said that the debt office was the engine room of the nation’s economy that was always expected to come up with sustainable debt management models for the overall prosperity of the country.

    “While acknowledging the crucial role the DMO has continued to play in the management of the country’s economy, this visit is significant and historic. The DMO is the engine room of the Nigerian Economy whose initiatives have often prevented the economy from going into recession”, Hon. Ajayi said.

    He noted that with the current stiff challenges facing the country as a result of the sharp decline in revenues from the sale of crude oil, the DMO is once again, expected to play a pivotal role in the effort to steer the economy out of trouble.

    The Director-General of DMO, Dr. Abraham Nwankwo praised the Chairman and members of the Committee for the special favour of coming to be with” them and expressed the DMO’s appreciation of the invaluable support and deep collaboration it has always enjoyed from the Committee.

    He said the D-G taken the DMO through turbulent times in the nation’s recent economic experience.

    Speaking on the theme: ‘Brief on the Mandate and Activities of the Debt Management Office’ Dr. Nwankwo recounted the background to the establishment of the DMO and outlined the milestones achieved by the Office since its inception.

    He reviewed the successes recorded by the debt office in revamping the hitherto moribund Domestic Debt Market and the successful launch of the Nigerian flag in the International Capital Market with its debut 500 million USD Eurobond issuance in 2011 and subsequent issuances in 2013 to raise funds towards financing the deficits in the national budget.

    Dr. Nwankwo said the DMO assisted the 36 States of the Federation and the FCT to establish their own Debt Management Departments (DMDs) and the fiscal stabilisation intervention of the DMO which led to the restructuring of the debts owed to banks by some States into long tenured bonds.

  • SEC, DMO collaborate to issue Nigeria’s First Sovereign Sukuk

    SEC, DMO collaborate to issue Nigeria’s First Sovereign Sukuk

    Nigeria moved a step closer to issuing her first sovereign sukuk as the Securities and Exchange Commission (SEC) and the Debt Management Office (DMO) agreed to collaborate towards realizing that goal.

    A statement from the SEC issued Tuesday evening said this was the major outcome of the visit to the DMO by the SEC Director General, Mr. Mounir Gwarzo.

    In November last year, the DMO Director General, Dr. Abraham Nwankwo, paid a courtesy call on Mr. Mounir Gwarzo during which the two chief executives agreed to reinforce partnership to deepen the domestic bond market. “The latest visit, the second meeting in less than three months, is a clear sign of a closer working relationship the two government agencies now enjoy,” the statement read.

    Dr. Nwankwo of DMO highlighted the importance his agency attaches to the non-interest products space and revealed that a sovereign sukuk issuance has been part of the institution’s strategic plan drawn up three years ago.

    He solicited support from the SEC, especially in the area of capacity building in order to realize the goal of issuing Nigeria’s first sovereign sukuk within the year 2016.

    In his response, Mr. Gwarzo assured the DMO of continued support, pledging to take measures that will help enhance the capacity of relevant staff of the DMO including establishing regular interfaces between the DMO and key staff of SEC who are very knowledgeable in the area of non-interest finance.

    The SEC, Gwarzo said “will equally enable nominated staff of DMO to participate at the Capital Market Committee sub-committee on non-interest products to further deepen their capacity.”

    Mr. Gwarzo noted that “the continued decline in the prices of crude oil in the international markets, attendant drop in both foreign exchange and government revenues as well as fragility of growth from major emerging markets like China, the need for alternative sources of capital to finance infrastructure becomes increasingly more compelling.”

    Both government agencies therefore agreed on the urgent need to begin mobilizing capital in order to address the Nation’s investment needs. Particularly, issuing a sovereign sukuk will attract significant amounts of affordable capital from the Gulf countries and other established Islamic markets around the world into Nigeria.

    According to the SEC Director General, issuing a sovereign sukuk will send a much needed positive message to the market amidst the negative investor sentiment that persists currently. He expressed confidence that Nigeria’s maiden sovereign sukuk will be oversubscribed as both domestic and foreign investors have appetite for exposure to Nigeria.

    He therefore urged the DMO to take advantage of this unique opportunity to make a mark on the sukuk market in spite of the challenging times.

    When the SEC released rules on sukuk issuance in 2013, the State Government of Osun took advantage of the robust regulatory framework to issue Nigeria’s first sukuk in which it raised N11.4 billion.

  • Fed Govt to borrow N390b in three months

    Fed Govt to borrow N390b in three months

    The Federal Government  would borrow between N260 billion and N390 billion in the first three months of this year, the Debt Management Office (DMO), said yesterday.

    It said the long-term borrowing would come in five, 10 and 20-year local denominated bonds. The DMO said it would sell within the range of N40 to N60 billion in the bond maturing in 2020 in January and February and N20 to N30 billion of same tenor paper in March.

    The debt body will issue within the range of N40 to N60 billion of the 2026 paper in each of the first three months of the year and N40 to N60 billion in a fresh 2036 paper in March. Nigeria said it will borrow about N900 billion locally to finance part of the N2.2 trillion deficits in its 2016 budget.

    Analysts said the government’s  proposed N6.08 trillion budget for the 2016 fiscal year, has  N1.84 trillion deficit financing targeted mainly at infrastructure development to be funded through borrowing.

    The DMO is constitutionally empowered to explore local and international funding sources to see effective funding of the budget. The debt body is expected to source the additional N1.84 trillion budget deficit cash for capital expenditure, N984 billion of which would come from local investors  and N900 billion from international investors.

    The Managing Director, Afrinvest West Africa Plc, Ike Chioke, said the performance of the Nigerian bond market was majorly bearish last week as investors freed up liquidity to meet up with the  bond auction.

    He said the market condition was also affected by increased mopped up exercise and foreign exchange intervention provisioning of last week. The action prompted the average bond yields to close last week at 10.7 per cent from an average of 9.8 per cent a week ago.

    The sell-offs in the market was noticed across all bond tenors on all trading days. The bearish sentiments can be attributable to the decline in liquidity levels given the series of Central Bank of Nigeria (CBN) Open Market Operations (OMO) mop-ups that took place last week and the N136.2 billion worth of Treasury Bills auction that took place last Thursday.

    “We expect an increase in average yields as the DMO embarks on its monthly bond auction for January together with further decline in market liquidity if the CBN continues its mop up activities,” he said.

    Olakunle Ezun of Treasury & Research Unit, Ecobank Nigeria, explained that the drop in the Brent oil price has raised fundamental questions about naira outlook and viability of the 2016 budget. Oil price has fallen to $33.5/barrel from a high of $63.2/barrel about a year ago, representing a 47 per cent fall in 12 months.

    He said global oil prices have fallen sharply over the past 18 months, leading to significant revenue shortfalls in many energy exporting nations, including Nigeria. From 2010 until mid-2014, world oil prices had been fairly stable at around $110/barrel. But since June 2014 prices have more than halved, thereby raising issues about the funding capacity of the fiscal authority.

    Ezun said the N6.08 trillion 2016 budget proposal to the joint session of the National Assembly, seeks to stimulate the economy, making it more competitive by focusing on infrastructural development; delivering inclusive growth and prioritising the welfare of Nigerians. But the low oil prices might hinder the successful implementation of the budget.

    An economist, Bismark Rewane said the budget focuses on funding infrastructure, which entails the provision of tangible assets, like housing, power (electricity), transport, education, communication, and technology, on which other intangibles can be built. It also seeks to protect the poor with a social safety net including scholarships and food provision in schools.

  • The imperative of economic diversification by DMO

    The imperative of economic diversification by DMO

    IN spite of the deluge of challenges besetting our economy, Director-General of the Debt Management Office, Dr. Abraham Nwankwo recently assured Nigerians that our economy is very resilient because the federal government is in control and Nigeria’s economy will continue to remain sustainable.

    Nwankwo’s verdict which shortly after the opening of a one-day enlightenment workshop for Nigerian students in Kaduna also stressed that the economy is not only resilient and diversifiable but has started a robust journey upward under the present administration.

    He said: “Nigeria should be very proud that it has a CBN, it has an economic system that in spite of the oil shock we had our economy still remains strong. Other countries that have been in similar position, countries like Venezuela, Russia, have had their currencies devalued very rapidly in the 30 days of the oil shock. But you can observe that it was until about three months or four months later that in Nigeria’s case that the CBN has to do some little adjustments in the exchange rate.”

    He further stated, “This shows that over these years, we have attempted to improve, to diversify the economy to centre on agriculture and that is a source of inspiration for all of us. The inspiration is that given the current administration of President Muhammadu Buhari, there is a certain change and Nigerians should use this opportunity to do better than we did in the past by making sure that agriculture continues getting modernized so that we have food security, so that we also produce enough for processing and manufacturing, which will ultimately bring about the desired job creation which is at the center of President Buhari’s Administration.”

    Predictably, Nwankwo’s advocacy has struck a familiar chord with the present administration and among major players within the economy. Buhari only recently assured the nation that his administration would enact new policies in the 2016 national budget, which will see to the diversification of Nigeria’s economy from oil to other sectors such as mining, manufacturing and agriculture. Addressing a delegation of French investors in Abuja recently, President Buhari said, “We are doing our utmost best to encourage diversification into non-oil sectors which can employ a lot of people, which will ultimately help to improve security because unemployment and insecurity are inseparable.”

    The president’s clearest indication of the economic policy direction of his administration yet was further reinforced by the President, Lagos Chamber of Commerce and Industry, Alhaji Remi Bello who said that the fall in the price of crude oil, currently the mainstay of the country’s economy made diversification of the economy not only imperative but very urgent. In his welcome address at the opening ceremony of the 2014 Lagos International Trade fair in Lagos, Bello who spoke on the theme, “Promoting Nigerian Economy as a Preferred Investment Destination,” stressed that the theme of the Trade Fair underscored the importance of building an economy that is diversified.

    “The non-oil economy is generally more inclusive and integrated. It is characterized by high economic linkages, more stable and above all more sustainable,” he said. He called on government to fix the major impediments to productivity and competitiveness which he listed to include the parlous state of infrastructure especially public power supply, the challenge of substandard and fake products, poor state of roads, the high cost and limited access to funds, inconsistent policies and growing insecurity.

    The pledge by President Buhari amid calls by the DMO, major stakeholders within the economy had become more strident in the face the parlous state of financial affairs in the states. Thirty-six states of the federation had approached President Muhammadu Buhari in June to ask for a bailout following their inability to meet their basic financial obligations including the payment of the salaries of their employees and other pressing financial obligations. The President had acceded to their request by approving the disbursement of $1.6 billion paid into the Federation Account by the Nigerian Liquefied Natural Gas (NLNG) company to the three tiers of government. Buhari also approved a Central Bank of Nigeria (CBN) N250 billion to N300 billion special intervention fund solely for the payment of the backlog of staff salaries and the restructuring of their commercial loans with the Commercial Banks into long tenured loans of 20 years.

    Following this window of opportunity, 23 states of the federation applied to the DMO for their debts to be restructured into FGN Bonds, and all 23 States have been screened by the CBN and DMO and have had their loans converted into FGN Bonds, whose maturity will be in twenty years time.

    In the aftermath of the restructuring of this short term bank loans into long term Federal Government of Nigeria, FGN Bonds, Director-General of the Debt Management Office, Dr. Abraham Nwankwo sees immediate gains accruing to the states. He indicated that this restructuring would cut the states’ monthly debt services burden by a minimum of 55 percent and maximum of 97 percent.

    Throwing more light, he further explained that the renegotiated facilities would equally result in interest rate savings of between three and nine percent per annum for the affected states and would help them regain fiscal balance. Besides the gains accruable to the participating states, he explained that banks’ balance sheets would also improve as weak sub national loan assets are replaced with high quality sovereign assets. Nwankwo explained that the FGN Bonds enjoy enhanced liquidity since they are traded in the secondary market, thereby affording the banks improved space to lend to other sectors of the economy as they are free to convert their FGN Bond holdings into cash in the secondary market.

    The commercial Loan-to-FGN Bond plan is envisioned as a short term fiscal stabilization. Beyond this palliative measure, the diversification of the economy will bring to bear lasting positive impact which will drive economic vitality and place the nation on a stronger economic pedestal.

    A review of government’s revenue profile in the last half decade shows a disturbing pattern of our over dependence on oil, with oil accounting for about 80 percent of our foreign exchange earnings and non-oil sector contributing 20.1 percent (CBN 2010).

    Given this stark reality of our dependence on oil, the Nigerian economy is vulnerable to slump in the price of oil in the international market as is presently being felt in all facets of our economy.

    Despite these given statistics, available evidence point to a marginal improvement in the contribution of non-oil sector to the growth of the Nigerian economy. The Central Bank of Nigeria (CBN) attributed the growth in our Gross Domestic Product (GDP) from 6.9 percent in the third quarter of 2012 to 7.1 percent in the fourth quarter of the same year to the increase in the contribution of the non-oil sectors, particularly the industrial sector. (NBS 2012). The apex bank in its report titled, “Economic Report Fourth-Quarter 2012” stated that non-oil receipts stood at N589.98 billion (24.4 percent of the total). The risk of over dependence on oil has already been amply demonstrated by our shrinking foreign earnings occasioned by oil glut in the international market. With over 60 percent of Nigerians living below poverty line according to World Bank group, any further slide would be catastrophic.

    The value chain to agriculture has the transformative capacity to open up the economy and generate various activities capable of creating jobs and enhancing our quest for industrialisation. This is the future path for our sustainable economic growth and should be explored. The Manufacturing sector is a major that will be pivotal to our drive towards economic diversification. It is a major employer of labour which gives numerous Nigerians the opportunity to participate in our economic development.

    In essence, a knowledge based economy has as it’s the main driver manufacturing as parts and components must be produced. We should as a nation based on functional specialization and comparative advantage take into consideration the critical factors of production to increase the number of products which we can produce locally. Tourism, our resources in the solid mineral sector, the maritime sector are areas waiting for its resources to be harnessed for national growth and development.

    The economic challenges confronting the present administration in the face of plummeting oil price in the international market are indeed formidable and requires concerted effort to diversify our economy. This will entail policies to promote expanded production in both agricultural and industrial sector. If we achieve higher level of production output, we will not only satisfy local demand for our goods with a reasonable balance for export. We must work hard to expand our exports beyond African and Asian markets. The present government should place greater impetus in our penetration of African markets to fully harness our comparative advantage.

    An immediate upgrade of basic infrastructure to functional level such as adequate power and water supplies is required for our industrialization drive to yield meaningful results. Only then, will our concerted effort and promotion of Foreign Direct Investment become more impactful to our national economy.

    It is on this note that this writer aligns with the call by the  Debt Management Office for the diversification of the nation’s economy. The time is not only ripe  but the new administration has created a conducive atmosphere for that.

     

    • Abdallah wrote in from Kaduna 

     

  • No shaking over Nigeria’s exit from bond market, says DMO

    • ‘Bond market strong, reliable’

    THE Debt Management Office (DMO) has allayed fears that Nigeria’s delistment from the Global Bond Index by JP Morgan will harm the economy.

    Its Director-General, Dr. Abraham Nwankwo, said there was no cause for alarm.

    He said JP Morgan did not establish Nigeria’s bond market, but only recognised its effectiveness over the years.

    At a workshop for online publishers in Lagos last weekend, he said JP Morgan’s delisting did not mean the country’s bond market would die.

    “It was existing before JP Morgan observed and recognised it. The Nigerian bond market was built with indigenous Nigerian efforts. Over 99 per cent of investors in the market are local, Nigerian institutions and individuals,” he said.

    Nwankwo said JP Morgan was reacting to the collapse of oil prices, which is an external thing.

    “It is not reacting to any deficiency in the bond market itself.

    “So, the bond market remains strong, effective,” he said.

    He said Nigeria would work diligently to ensure that, in the next four years, it takes advantage of the shock caused by the collapse of oil prices to diversify the economy and set itself on a path of sustainable growth.

    “Nigeria’s economy does not depend on JP Morgan. We have explained to Nigerians that the JP Morgan is recognition of achievement of Nigeria in the bond market,” he said.

    ‘’Half the Nigerian bonds listed on JP Morgan’s emerging markets bond index (GBI-EM) were removed last month and the rest this month,’’ the United States’ bank said.

    The decision, which means investment funds tracking the index, will sell Nigerian bonds, adds to national borrowing costs from a sharp drop in oil revenues.

    JP Morgan based its decision on an illiquidity and currency restrictions in the financial market.

    In 2012, Nigeria became the second African country after South Africa to be listed in the index with a weight of 1.8 per cent. The estimated yield for Nigeria bonds on the index was quoted at 14.83 per cent as of September 25, marking the second highest yield after Brazil at 15.75 per cent, the bank said.

    Yields on the government bond spiked this month on the news of the index removal with the 10-year benchmark debt rising to as much as 16.68 percent, prompting the bond market regulator to widen spreads to calm volatility.

    The Central Bank of Nigeria (CBN), trying to stop the naira’s slide, has pegged its rate against the dollar, turning inter-bank trading into a one-way quote market whose lack of transparency has upset investors. JP Morgan said Nigeria would not be eligible for re-inclusion in the index for a minimum of 12 months.

     

  • DMO sells N80b 2020, 2034 debts at mixed yields

    DMO sells N80b 2020, 2034 debts at mixed yields

    The Debt Management Office has sold a total of N80.20 billion ($403 million) in bonds maturing in February 2020 and August 2034 at an auction on Wednesday with mixed yields.

    Total bids stood at N153.48 billion, more than the N119.53 billion at the previous auction.

    A total of N40 billion of the February 2020 bond was sold at the auction, while additional N10.20 billion of same tenor paper was allotted on non-competitive basis.

    It said the 2020 paper fetched a yield of 15.38 per cent, compared with 15.28 per cent at the last auction.

    The debt office sold N30 billion in the August 2034 debt at 15.19 per cent versus the 15.29 per cent the paper fetched at the last auction. The 2020 debt closed at 15.41 per cent at the secondary market on Wednesday, while the 2034 paper closed at 15.19 per cent.

    The DMO regularly issues bond instruments which creates more debts for the economy. The DMO was established on October 4, 2000 to centrally coordinate the management of Nigeria’s debt, which was hitherto being done by a myriad of establishments in an uncoordinated 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 macroeconomic management, including monetary and fiscal policies; avoid debt crisis and achieving an orderly growth and development of the national economy.

  • DMO may issue N240b bonds in September

    DMO may issue N240b bonds in September

    The Debt Management Office (DMO) may issue Federal Government of Nigeria (FGN) bonds worth between N180 billion and N240 billion in September, analysts at FBN Capital, an investment and research firm, have predicted.

    Head, Markets, at FBN Capital, Olubunmi Ashaolu, said the forecast was based on DMO’s provisional issuance calendar for the third quarter which ends in September.

    Quoting a report, titled: “A challenging issuance calendar for the DMO,” released on Monday, he said the debt office was selling the existing five-year and 20-year benchmarks at 15.54 per cent, adding that it has the unenviable task of issuing the calendar amid fiscal uncertainty.

    “The 2015 budget was finally signed off by the last President. To an extent, the market was bought into the idea that the new administration will bring greater fiscal discipline. We expect that it will deliver, but not in time to make a marked impact in    the third quarter,” he said.

    Ashaolu said there could be a supplementary budget ahead of the full exercise for next year, adding that the idea broadly is to meet spending pledges by the plugging of leakages. He causioned against over-expectation, saying that as “the leakages were not created overnight, so they cannot be immediately stemmed”.

    Ashaolu said the DMO has a new challenge in the form of apparent investor fatigue, stating that after a healthy recovery in demand in both April and May 2015, the total bid in June dipped again to N131 billion. He said the delayed FAAC distribution was also to blame.

    But the Director-General, West African Institute for Financial and Economic Management (WAIFEM), Prof Akpan Ekpo, has urged the DMO on the need to slow down, or temporary halt debt issuance given Nigeria’s rising debt profile.

    The WAIFEM regularly provides technical support for Nigeria’s Debt Sustainability Analysis conducted annually by the DMO. Data obtained from DMO shows that Nigeria’s domestic and external debt stocks currently stand at N12.06 trillion as at March 31.

    Prof. Ekpo told The Nation that the debt office needs to be much more innovative in issuing bonds, adding that states should also slow down on debt issuance. He said the practice where most of the commercial banks buy the issued bonds, make their margins and declare huge profit does not benefit the economy. Ekpo also added that the current practice where government borrows to pay salaries is not only worrisome, but dangerous for the economy.

    “There should be a temporary halt for debt issuance. We also need to monitor our external borrowings,” he said.

    The DMO regularly issues bond instruments which creates more debts for the economy.

    Ekpo explained that in 2004, Nigeria’s debt stock amounted to about $46.6 billion, which comprised of $35.9 billion of external debt and $10.7 billion of domestic debt. He said that high debt service costs on Nigeria’s $30.4 billion Paris Club debt had tremendously strained government public finances, crowding out space, for other necessary social expenditure and investments in public infrastructure.

    However, he said that as part of the successful debt negotiation process with the Paris Club, Nigeria paid its creditors outstanding arrears of $6.4 billion, received debt write – off of $16 billion on the remaining debt stock (under Naples terms), and purchased its outstanding $8 billion debt under a buy back agreement at 25 per cent discount for $6 billion.

    The entire debt relief package totaled $18 billion, or a 60 per cent write-off in return for $12.4 billion payment of arrears and buyback.

    He said the exercise involving the buyback was unprecedented and represented an “unnatural” solution under the Paris Club protocol for a low-income country; it was the second largest – debt relief operation in the Club’s 50 – year history.  Such was the debt exit deal that succeeded in eliminating Nigeria’s external debt overhang syndrome.

    The DMO was established on October 4, 2000 to centrally coordinate the management of Nigeria’s debt, which was hitherto being done by a myriad of establishments in an uncoordinated 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 macroeconomic management, including monetary and fiscal policies; avoid debt crisis and achieving an orderly growth and development of the national economy.