FG Must Reduce Debt Burden Ratio Below 20%—FSDH

Image

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.

Share
Related Stories
Image
29-February-2024

Naira Gains as Binance, Others Halt USDT, USDC Exchanges Amid Crackdown

By Adedapo Adesanya The Naira appreciated against the US Dollar in the foreign exchange (FX) market on Wednesday, February 28 as crypto exchanges like Binance, will no longer allow users to buy the US Dollar Tether (USDT) and US Dollar Coin (USDC) stablecoins with Naira after renewed scrutiny from the Nigerian government. The regulatory crackdown continued in the Nigerian FX market as the country moved to aggressively suppress the activities of spectators and traders across digital platforms. On Wednesday, the Nigerian government tricked two executives of Binance – an American and a British Pakistani into the country for a meeting

Image
27-February-2024

Aradel Holdings Triggers 0.56% Fall at NASD OTC Exchange

By Adedapo Adesanya The NASD Over-the-Counter (OTC) Securities Exchange closed in the negative territory on Monday after it recorded a 0.56 per cent decline at the close of transactions. This was majorly caused by the N50 loss suffered by Aradel Holdings Plc, whose share price closed yesterday at N2,650 per unit, in contrast to the previous session’s N2,700 per unit. As a result, the value of the NASD OTC exchange went down by N8.95 billion on the first trading day of the new week to N1.603 trillion from the N1.611 trillion it ended last Friday, as the NASD Unlisted Security

Image
28-February-2024

Equity Market Sheds 1.39% as CBN’s Interest Rate Hike Dampens Mood

By Dipo Olowookere The decision of the Central Bank of Nigeria (CBN) to hike the Monetary Policy Rate (MPR) by 4.00 per cent to 22.75 per cent to curb rising inflation on Tuesday suppressed the Nigerian Exchange (NGX) Limited by 1.39 per cent. The action forced investors to liquidate their equities during the session for instruments in the money markets, which are anticipated to give higher yields than stocks. The bourse witnessed sell-offs across the sectors during the session, with the banking space losing 3.35 per cent, and the insurance counter depreciating by 2.19 per cent. Further, the consumer goods

More Stories
Image
26-September-2017

Another Economic Crisis Looms over CBN “Reckless Funding of FG”

By Premium Times Just when Nigerians are celebrating the exit of the economy from recession, a report has warned that another trouble is lurking around the corner. According to Premium Times, a massive and clearly illegal multi-source funding of the federal government by the CBN could drag the Nigerian economy to its knees, experts familiar with domestic monetary conditions and current happenings at the CBN have warned. The central bank had, in the last one year, pumped trillions of naira into illegally financing the federal government under different guises: from mass purchase of treasury bills to humongous direct financing of

Image
24-July-2020

FY’19: African Alliance Grows Market Share as GPW Rises 41%

By Dipo Olowookere Despite the harsh operating environment last year, foremost life insurer, African Alliance Insurance Plc, increased its market share, affirming its leading position in the sector. In the 2019 financial year, it was observed that the company grew its gross premium written (GPW) by 41 per cent to N7.29 billion from N5.17 billion in 2018. Also, its life fund went up by 16 per cent to N45.33 billion in the same period under review from N38.99 billion in the corresponding period of last year. The increase in both the premium generated and the life fund lend credence to

Image
06-September-2017

Africa’s Food Market May Worth Over $1tr Yearly by 2030—Report

By Dipo Olowookere The latest Africa Agriculture Status Report (AASR) has predicted that the rapidly growing food market in Africa may be worth more than $1 trillion each year by 2030. The report, launched at this year’s African Green Revolution Forum (AGRF) in Cote d’Ivoire, revealed that agriculture will be Africa’s quiet revolution, with a focus on SMEs and smallholder farmers creating the high productivity jobs and sustainable economic growth that failed to materialise from mineral deposits and increased urbanisation. It noted that the power of entrepreneurs and the free market is driving Africa’s economic growth from food production, as

Image
24-April-2022

Airtel Employees to Engage Children in Interactive Reading Sessions

By Modupe Gbadeyanka Some Nigerian children will be engaged in interactive reading sessions this week by employees of Airtel Nigeria as part of activities to mark World Book Day. This is to encourage pupils and students to embrace the reading culture, which is almost dead in Nigeria. The Airtel employees will also donate thousands of reading books to children across its adopted primary schools in Nigeria through the award-winning Employee Volunteer Scheme (Airtel EVS). This will kick off on Tuesday, April 26, 2022, at the Oremeji Primary School, Ajegunle, Lagos, and Yahaya Hamza Primary School, Zaria Kaduna while the train

Image
20-October-2018

Stocks Gain N83b as Q3 Results Impress Investors

By Dipo Olowookere The last trading day of the week ended positive on Friday as equities extended the positive momentum of the previous session. This was mainly influenced by the impressive third quarter earnings that came in during the week, which gave investors the appetite to pick up some shares that could yield good returns in the next few weeks. At the close of transactions yesterday, the Nigerian Stock Exchange (NSE) was facing north by 0.70 percent, shrinking the year-to-date loss to 14.59 percent. While the All-Share Index (ASI) increased by 227.28 points to settle at 32,664.63 points, the market

Image
03-August-2019

12 Nigerian States Attract $15bn Investments in Six Months

By Adedapo Adesanya The latest report released by the Nigerian Investment Promotion Commission (NIPC) has revealed that 12 states in the country received investments worth $15 billion in the first half of 2019. According to the NPIC report, a total of 43 projects across 12 states and Federal Capital Territory (FCT) were approved by investors from 20 countries. The report listed some of the beneficiary states as those in Niger Delta region, Ondo, Lagos and FCT. Meanwhile, investments recorded in the first half of 2019 were 67 percent less in value than the corresponding period of 2018. According to the

Image
23-April-2018

IMF, European Investment Bank to Support Financial Inclusion in Africa

By Dipo Olowookere Both the European Investment Bank (EIB), and the International Monetary Fund (IMF) have agreed to work closely together to assist Africa deepen its financial inclusion drive and stability. Recently, the two financial institutions signed a Letter of Understanding to pool their expertise and experience to promote sustainable economic development on the continent. From the deal, the EIB will contribute about €3 million to IMF economic institutions, namely the African Regional Capacity Development Centres (AFRITACs) and the Financial Sector Stability Fund (FSSF), and will launch a new course with the IMF on financial intermediation and financial inclusion. As

Image
01-November-2020

Twiga Foods Secures Fresh $29.4m for Expansion

By Adedapo Adesanya Kenya agri-tech startup, Twiga Foods, has secured $29.4 million in debt funding from the International Finance Corporation (IFC) to support more than 300 irrigated medium-scale contract farmers to complement Twiga’s seasonal smallholder farmer supply base. Founded in 2014, Twiga Foods is a business-to-business food distribution company that builds fair and reliable markets for agricultural producers and retailers through transparency, efficiency and technology. Twiga will use the funds to set up a distribution centre in Nairobi and deepen its conversion to offering supply chain services for both agricultural and FMCG products. The Nairobi-based company will invest in expanding

Ad
Ad
Recent Stories
Image
29-February-2024

Adesina to Receive Prestigious Obafemi Awolowo Prize for Leadership

By Ichie Enyi Ejike Umunnabuike Jr Come March 6, 2024, the Lagos Continental Hotel will host an unforgettable occasion when the President of the African Development Bank (AfDB), Mr Akinwumi Ayodeji Adesina, will be formally honoured and presented with the distinguished Obafemi Awolowo Prize for Leadership 2023. The Obafemi Awolowo Prize for Leadership was first announced in December 2012, with the official award ceremony held on March 6, 2013. Before Mr Adesina was announced as its fourth recipient, three other distinguished personalities had been conferred with the prestigious award – Noble Laureate, Prof. Wole Soyinka; former South African President, Thabo

Image
29-February-2024

Exploring Diverse and Evolving Sounds of Africa

Africa’s music scene is a sonic melting pot, where rhythms collide and cultures connect. It’s a universal language, a force that breaks boundaries and fuels the soul. This sonic tapestry isn’t just diverse – it’s explosive. Afrobeats and Amapiano own the spotlight right now. Those irresistible Afrobeats hooks? They’ve got the whole world dancing. And Amapiano’s hypnotic blend of South African house and street sounds? It’s straight-up addictive. Mainstream African artists are pushing the boundaries like no one else, taking Amapiano and running with it. They’re injecting their fire, creating a whole new flavour. This is proof that African music

Image
29-February-2024

Nigeria Needs Policies that Prioritize Economic Recovery—Peter Obi

By Adedapo Adesanya The presidential candidate of the Labour Party in the 2023 general elections, Mr Peter Obi, has raised concerns over the recent decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to increase the Monetary Policy Rate (MPR) to 22.5 per cent and the Cash Reserve Ratio (CRR) to 45 per cent. Mr Obi warned that this move is likely to worsen the ongoing economic challenges faced by many Nigerian households, and emphasized the need for policies that prioritize economic recovery. In a statement issued via X (formerly Twitter), the businessman and former

Image
29-February-2024

Silence Laboratories Raises $4.1m for Privacy-Preserving Computing

By Adedapo Adesanya Silence Laboratories has announced securing $4.1 million in funding to enable privacy-preserving collaborative computing led by Pi Ventures and Anurag Arjun, along with several prominent angel investors. In a statement shared with Business Post, the company said with the market for privacy-enhancing technologies (PETs) growing globally at a compound annual growth rate of 26.6 per cent, there is growing demand. In recognition of this, Silence Laboratories is offering to provide mathematical guarantees for techno-legal expectations as part of a mission to create infrastructure to enable complex data collaborations between enterprises and entities, without any sensitive information being

Image
29-February-2024

MainOne Stretches Submarine Cable to Akwa Ibom

By Modupe Gbadeyanka A submarine cable spanning 45,000km in length known as 2Africa has been landed in Akwa Ibom State by MainOne, an Equinix company. It is one of the world’s largest subsea cable projects and will interconnect Europe, Asia, and Africa, with a design capacity of up to 180Tbps. The cable is the first and only submarine cable system in Nigeria outside of Lagos, and it marks a significant milestone in enhancing broadband connectivity and driving economic development in the South-South, South-East and North-Central regions of Nigeria. The significance of 2Africa lies in its capacity to address critical internet

Image
29-February-2024

Russia, Mali Review Military Partnership

By Kestér Kenn Klomegâh  Russian Foreign Minister Sergey Lavrov has offered an increased military partnership during the latest bilateral talks held on February 28, 2024, with his Malian counterpart Abdoulaye Diop in Moscow. The significance of Russian support is directed at fighting terrorism and enhancing the combat effectiveness of the Malian army and law enforcement agencies, including the training of soldiers and police officers The interim military government has maintained a well-developed multifaceted nature of bilateral relations with Russia since the military ascended into political power. Russian leader Vladimir Putin and Mali’s Interim President Assimi Goita on the sidelines of

Image
29-February-2024

Anthropics Unveils Zyler Virtual Try-On for Menswear

By Modupe Gbadeyanka One of the global leaders in virtual fashion try-on technology, Anthropics, has moved to transform the future of online shopping with the introduction of the Zyler Virtual Try-On for menswear. The new initiative will improve the way consumers shop for clothes, providing a realistic virtual try-on experience. With it, customers can upload a headshot, enter some measurements, and then see themselves on the screen wearing the outfit. Powered by the latest research in Artificial Intelligence, Zyler creates a lifelike virtual representation of the user, allowing them to see how different garments fit and look on their unique

Image
29-February-2024

Aradel Holdings, CSCS, FrieslandCampina Sink NASD Exchange by 0.79%

By Adedapo Adesanya Profit taking in the trio of Aradel Holdings Plc, Central Securities Clearing System (CSCS) Plc, and FrieslandCampina Wamco Nigeria Plc made the NASD Over-the-Counter (OTC) Securities Exchange close the midweek session further in the red territory on February 28 by 0.79 per cent. Aradel Holdings Plc lost N20.50 to close at N2,500.00 per share compared with the previous day’s N2,520.50 per share, CSCS Plc depreciated by N1.35 to end the day at N18.65 per unit versus the N20.00 per unit it was traded on Tuesday, and FrieslandCampina Wamco Plc declined by 63 Kobo to N70.25 per share

Image
29-February-2024

Naira Gains as Binance, Others Halt USDT, USDC Exchanges Amid Crackdown

By Adedapo Adesanya The Naira appreciated against the US Dollar in the foreign exchange (FX) market on Wednesday, February 28 as crypto exchanges like Binance, will no longer allow users to buy the US Dollar Tether (USDT) and US Dollar Coin (USDC) stablecoins with Naira after renewed scrutiny from the Nigerian government. The regulatory crackdown continued in the Nigerian FX market as the country moved to aggressively suppress the activities of spectators and traders across digital platforms. On Wednesday, the Nigerian government tricked two executives of Binance – an American and a British Pakistani into the country for a meeting

Image
29-February-2024

Crude Oil Mixed on Undecided US Interest Rates Move, High Inventories

By Adedapo Adesanya Crude oil futures settled mixed on Wednesday after the US Federal Reserve held firm on its decision to hold off cutting interest rates soon while growing crude stockpiles in the world’s largest producer added further pressure. Brent crude futures settled 3 cents higher, or up 0.04 per cent at $83.68 a barrel while the US West Texas Intermediate futures (WTI) settled 33 cents lower, or down 0.42 per cent at $78.54. The market was unsteady over signs that interest rates in the world’s largest economy would remain elevated. US Federal Reserve Bank of New York President John