Economy
FG Must Reduce Debt Burden Ratio Below 20%—FSDH
By Modupe Gbadeyanka
Federal Government has been advised to development ways to reduce its debt burden ratio below 20 percent, at least in the main time.
FSDH Research, in its latest report titled ‘Nigerian Public Debt: A Comparative Analysis,’ said the fact that interest payment is such a significant part of government revenue limits the revenue left for the government to undertake other developmental projects in the short-term.
“We expect this position to improve as government revenue increases as a result of the ongoing economic measures in the country to raise the level of revenue.
“We are of the opinion that government should develop strategies to reduce the ratio of interest payment to revenue below 20 percent in the medium-term,” the firm suggested.
It said further that although the debt stock in Nigeria has increased substantially, it believes this is sustainable in the short-to-medium term given the economic growth potential of the country.
In the short-to-medium-term, government will need to borrow both from external and domestic sources in order to augment the low revenue facing the country as a result of the current economic challenges.
The FGN needs to improve critical infrastructure in the country to increase the competitiveness of the economy to attract investments. This requires more money than current government revenue. The FGN is also working to diversify its revenue base through the issuance of the FGN Savings Bond, Diaspora Bond, and Sukuk.
The efforts of the FGN coupled with the improvement in the macroeconomic environment should help to lower interest rate, it noted.
“We will also continue to encourage the government to partner with the private sector in the provision of critical infrastructure. In addition, government should ensure that any debt contracted is judiciously utilised on projects that promote economic growth and development,” FSDH Research said.
The firm said it observed that the public debt (total of both external and domestic debt) in Nigeria has been increasing over the last five years and the issue of the sustainability of the debt level has generated a lot of debate.
A comparative analysis of the debt-to-Gross Domestic Product (GDP) of a number of countries shows that the ratio of debt-to-GDP is very low in Nigeria.
“Amongst the countries we monitored, Japan recorded the highest debt-to-GDP of 250.40%. This was followed by the United States of America (U.S) with 104.17%; France 96%, United Kingdom (UK) 89.30%; and Germany 68.30%. India and China have a debt-to-GDP of 69.50% and 42.90% respectively. South Africa and Venezuela have debt-to-GDP of 50.10% and 49.80% respectively,” it said.
Available data from the Debt Management Office (DMO) shows that Nigeria’s total debt stock as at March 2017 stood at N19.16trn, representing an increase of 10.37% from the December 2016 figure of N17.36trn.
This also represents growth of 153.63% from N7.55trn in 2012. A breakdown of the debt stock shows that external debt accounted for 22.08% (N4.23trn), while domestic debt stock accounted for 77.92% (N14.93trn).
The increase in the total debt is attributable to the following factors: the need to fund infrastructure and to supplement the declining government revenue. Many analysts have argued that the increase in government’s appetite for borrowing has crowded out the private sector.
The proportion of domestic debt to total public debt dropped consistently between 2013 and Q1
2017.
On the average, the proportion of domestic debt to total debt was 85% between 2012 and 2015; but reduced to 78% between 2016 and Q1 2017.
The increase in external borrowing and the impact of exchange rate depreciation were the main reasons for the reduction in the proportion of the domestic debt stock. The FGN has set what it believes to be an optimal domestic debt to external debt ratio at 60:40. At the current (external to domestic debt) level of 78:22, it appears that there is still room to increase the external debt component of the total debt stock.
The debt-to-GDP in Nigeria as at December 2016 stood at 17.11%. This is far below the critical limit of 40% the FGN has set for the Nigerian economy.
This means that, by this metric alone, there is substantial room for the government to increase its borrowing.
However, the debt-to-GDP ratio is not the only issue. The major stress point is the rising level of interest payment relative to government revenue. The ratio of interest payment-to-government-revenue increased from 24.48% in 2012 to an estimated 35.32% in 2016.
The FGN expects that this ratio will moderate slightly to 33.67% in 2017.
By Dipo Olowookere
Investors at the Nigerian Exchange (NGX) Limited have continued to show excitement for the full-year earnings of companies on the exchange so far.
On Friday, Customs Street further appreciated by 1.01 per cent as more organization released their financial statements for the 2025 fiscal year.
During the session, traders continued their selective trading strategy, with the energy sector going up by 2.47 per cent at the close of business despite profit-taking in the banking counter, which saw its index down by 0.11 per cent.
Yesterday, the insurance space grew by 2.16 per cent, the industrial goods segment expanded by 1.70 per cent, and the consumer goods industry jumped by 0.42 per cent.
Consequently, the All-Share Index (ASI) increased by 1,722.13 points to 171,727.49 points from 170,005.36 points, and the market capitalisation soared by N1.106 trillion to N110.235 trillion from the N109.129 trillion it ended on Thursday.
Business Post reports that there were 59 appreciating stocks and 19 depreciating stocks on Friday, representing a positive market breadth index and strong investor sentiment.
The trio of Omatek, Deap Capital, and NAHCO gained 10.00 per cent each to sell for N2.64, N6.82, and N136.40 apiece, as Zichis and Austin Laz appreciated by 9.98 per cent each to close at N6.72 and N5.40, respectively.
Conversely, The Initiates depreciated by 9.74 per cent to N19.45, DAAR Communications slumped by 7.32 per cent to N1.90, United Capital crashed by 6.55 per cent to N18.55, Coronation Insurance lost 5.71 per cent to quote at N3.30, and First Holdco shrank by 5.53 per cent to N47.00.
The activity chart showed an improvement in the activity level, with the trading volume, value, and number of deals up by 33.77 per cent, 93.27 per cent, and 10.63 per cent, respectively.
This was because traders transacted 953.8 million shares worth N43.1 billion in 51,005 deals compared with the 713.0 million shares valued at N22.3 billion traded in 46,104 deals a day earlier.
Fidelity Bank was the most active with 92.4 million units sold for N1.8 billion, Chams transacted 69.2 million units valued at N310.9 million, Deap Capital exchanged 59.1 million units worth N382.7 million, Access Holdings traded 57.2 million units valued at N1.3 billion, and Tantalizers transacted 48.6 million units worth N228.2 million.
By Adedapo Adesanya
The value of the Naira contracted against the United States Dollar on Friday by 13 Kobo or 0.01 per cent to N1,366.19/$1 in the Nigerian Autonomous Foreign Exchange Market (NAFEX) from the previous day’s value of N1,366.06/$1.
According to data from the Central Bank of Nigeria (CBN), the Nigerian currency also depreciated against the Pound Sterling in the same market window yesterday by N2.37 to N1,857.75/£1 from the N1,855.38/£1 it was traded on Thursday, and further depleted against the Euro by 57 Kobo to close at N1,612.52/€1 versus the preceding session’s N1,611.95/€1.
In the same vein, the exchange rate for international transactions on the GTBank Naira card showed that the Naira lost N8 on the greenback yesterday to N1,383/$1 from the previous day’s N1,375/$1 and at the black market, the Nigerian currency maintained stability against the Dollar at N1,450/$1.
FX analysts anticipate this trend to persist, primarily influenced by increasing external reserves, renewed inflows of foreign portfolio investments, and a reduction in speculative demand.
In the short term, stability in the FX market is expected to continue, supported by policy interventions and improving market confidence.
Nigeria’s foreign reserves experienced an upward trajectory, increasing by $632.38 million within the week to $46.91 billion from $46.27 billion in the previous week.
The Dollar appreciation this week appears to be largely technical, serving as a correction to the substantial losses experienced from mid- to late January.
Meanwhile, the cryptocurrency market slightly appreciated, with Bitcoin (BTC) climbing near $68,000, up nearly 5 per cent since hitting $60,000 late on Thursday after investor confidence in crypto’s utility as a store of value, inflation hedge, and digital currency faltered.
The sell-off extended beyond crypto, with silver plunging 15 per cent and gold sliding more than 2 per cent. US stocks also fell.
The latest recoup saw the price of BTC up by 4.7 per cent to $67,978.96, as Ethereum (ETH) appreciated by 6.3 per cent to $2,021.10, and Ripple (XRP) surged by 9.5 per cent to $1.42.
In addition, Solana (SOL) grew by 7.3 per cent to $85.22, Cardano (ADA) added 6.1 per cent to trade at $0.2683, Dogecoin (DOGE) expanded by 5.4 per cent to $0.0958, Litecoin (LTC) rose by 5.2 per cent to $53.50, and Binance Coin (BNB) jumped by 2.3 per cent to $637.79, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.
By Adedapo Adesanya
Oil prices settled higher on Friday as traders worried that this week’s talks between the US and Iran had failed to reduce the risk of a military conflict between the two countries.
Brent crude futures traded at $68.05 a barrel after going up by 50 cents or 0.74 per cent, and the US West Texas Intermediate (WTI) crude futures finished at $63.55 a barrel due to the addition of 26 cents or 0.41 per cent.
Iran and the US held negotiations in Muscat, the capital of Oman, on Friday to overcome sharp differences over Iran’s nuclear programme.
It was reported that the talks had ended with Iran’s foreign minister saying negotiators will return to their capitals for consultations and the talks will continue.
Regardless, the meeting kept investors anxious about geopolitical risk, as Iran wanted to stick to nuclear issues while the US wanted to discuss Iran’s ballistic missiles and support for armed groups in the region.
Any escalation of tension between the two nations could disrupt oil flows, since about a fifth of the world’s total consumption passes through the Strait of Hormuz between Oman and Iran.
Saudi Arabia, the United Arab Emirates, Kuwait and Iraq export most of their crude via the strait, as does Iran, which is a member of the Organisation of the Petroleum Exporting Countries (OPEC).
According to Reuters, Iran objected to the presence of any US Central Command (CENTCOM) or other regional military officials, saying that would jeopardise the process.
The current confrontation was sparked by more than two weeks of unrest in Iran that saw authorities launch a deadly crackdown that killed thousands of civilians and shocked the world. As reports of the deaths trickled out of Iran, US President Donald Trump threatened to strike Iran if any of the tens of thousands of protesters arrested were executed.
Meanwhile, Kazakhstan’s planned oil exports could fall by as much as 35 per cent this month via its main route through Russia, as the country’s top oil company, Tengiz oilfield, slowly recovers from fires at power facilities in January.
ING analysts have pointed out Iran’s neighbour, Iraq, and a disagreement with the US as another bullish factor for oil prices. It seems Iraqi politicians favour Mr Nouri al-Maliki as the country’s next Prime Minister, but the US thinks Mr al-Maliki is too close to Iran. President Trump has already threatened the oil producer with consequences if he emerges as PM.
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