Economy
Sharp Rise in Nigeria’s Debt to Revenue Ratio Worries Fitch
By Dipo Olowookere
United States-based rating agency, Fitch Ratings, has expressed worry about the sharp increase in the debt to revenue ratio of Nigeria.
A director at Fitch, Mr Mahmoud Harb, informed Reuters in a chat that this and another factor could force his organisation to further downgrade the rating of Africa’s largest economy.
Mr Harb listed the other factor that could trigger a rating lowering as a rising decline in the foreign exchange inflows into the country, which is mainly derived from crude oil sales.
According to Fitch, Nigeria will need not less than $23 billion to meet its external financing needs in 2020 and the few options the nation has is to run down its foreign reserves.
Business Post reports that as at the close of business on Monday, June 22, 2020, Nigeria had $36.260 billion in its reserves, lower than $36.302 billion on Friday, June 19, 2020.
“We have two elements that could lead us to take a negative rating action/downgrade on Nigeria.
“Aggravation of external liquidity pressures and a sharp rise in government debt to revenues ratio,” Mr Harb informed Reuters.
In April 2020, Fitch downgraded Nigeria to “B” with a negative outlook from “B+”. The reason for this action then was an aggravation of pressure on the country’s external finances.
The local authorities in March reviewed the 2020 budget, bringing down the crude oil benchmark to $30 per barrel because of a sharp decline in the price of the commodity at the global market.
Two months after, the government further reduced the threshold to $25 per barrel after prices fell below $20 per barrel at the international space.
The federal government, which had planned to approach the foreign debt market for a Eurobond of $2.36 billion, shelved the plan and converted it to an N850 billion domestic debt programme.
The funds would be sourced from the sale of debt securities like the FGN Bonds, treasury bills and others, with proceeds to be used for the budget deficit.
Recently, it was reported that in the first quarter of 2020, Nigeria’s debt service to revenue ratio stood at 99 percent, meaning that for every N100 generated by the country, N99 was used to service the various debts incurred by the government.
On Monday, Business Post reported that the Debt Management Office (DMO) assured Nigerians that there will never be a situation where China will have to take possession of the projects financed with its loans because of payment default.
According to the DMO, adequate provisions have been made to repay the debts, noting that, “Nigeria explicitly provides for debt service on its external and domestic debt in its annual budgets.”
“In effect, this means that debt service is recognised and payment is planned for.
“In addition, a number of the projects being (and to be) financed by the loans are either revenue generating or have the potential to generate revenue,” the DMO further said.
The debt office had said in a statement last week that as at March 31, 2020, the total borrowing from China stood at $3.121 billion at an interest rate of 2.50 percent per annum, with a 20-year maturity and a 7-year moratorium.
The agency said the low interest rate reduces the interest cost to the government, while the long tenor enables the repayment of the principal sum of the concessional loans over many years.
“These two benefits make the provisions for debt service in the annual budget lower than they would otherwise have been if the loans were on commercial terms,” the debt office said.
By Adedapo Adesanya
The Nigerian Exchange (NGX) Limited is seeking review of the controversial Capital Gains Tax increase, fearing it will chase away foreign investors from the country’s capital market.
Nigeria’s new tax regime, which takes effect from January 1, 2026, represents one of the most significant changes to Nigeria’s tax system in recent years.
Under the new rules, the flat 10 per cent Capital Gains Tax rate has been replaced by progressive income tax rates ranging from zero to 30 per cent, depending on an investor’s overall income or profit level while large corporate investors will see the top rate reduced to 25 per cent as part of a wider corporate tax reform.
The chief executive of NGX, Mr Jude Chiemeka, said in a Bloomberg interview in Kigali, Rwanda that there should be a “removal of the capital gains tax completely, or perhaps deferring it for five years.”
According to him, Nigeria, having a higher Capital Gains Tax, will make investors redirect asset allocation to frontier markets and “countries that have less tax.”
“From a capital flow perspective, we should be concerned because all these international portfolio managers that invest across frontier markets will certainly go to where the cost of investing is not so burdensome,” the CEO said, as per Bloomberg. “That is really the angle one will look at it from.”
Meanwhile, the policy has been defended by the chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Mr Taiwo Oyedele, who noted that the new tax will make investing in the capital market more attractive by reducing risks, promoting fairness, and simplifying compliance.
He noted that the framework allows investors to deduct legitimate costs such as brokerage fees, regulatory charges, realised capital losses, margin interest, and foreign exchange losses directly tied to investments, thereby ensuring that they are not taxed when operating at a loss.
Mr Oyedele also said the reforms introduced a more inclusive approach to taxation by exempting several categories of investors and transactions.
By Adedapo Adesanya
Food Concepts Plc neutralized the gains recorded by three securities, returning the NASD Over-the-Counter (OTC) Securities Exchange into the negative territory with a 0.27 per cent loss on Thursday, December 4.
Yesterday, the share price of the parent company of Chicken Republic and PieXpress declined by 34 Kobo to sell at N3.15 per unit compared with the previous day’s N3.49 per unit.
This shrank the market capitalisation of the OTC bourse by N5.72 billion to N2.136 billion from N2.142 trillion and weakened the NASD Unlisted Security Index (NSI) by 9.57 points to 3,571.53 points from 3,581.10 points.
Business Post reports that Central Securities Clearing System (CSCS) Plc went down by 50 Kobo to N38.50 per share from N38.00 per share, FrieslandCampina Wamco Nigeria Plc gained 29 Kobo to sell at N55.79 per unit versus N55.50 per unit, and Geo-Fluids Plc added 5 Kobo to close at N4.60 per share compared with Wednesday’s closing price of N4.55 per share.
Trading data indicated that the volume of securities recorded at the session surged by 6,885.3 per cent to 4.3 million units from the 61,570 units posted a day earlier, the value of securities increased by 10,301.7 per cent to N947.2 million from N3.3 million, and the number of deals went up by 146.7 per cent to 37 deals from the 15 deals achieved in the previous trading session.
At the close of business, Infrastructure Credit Guarantee Company (InfraCredit) Plc was the most traded stock by value on a year-to-date basis with the sale of 5.8 billion units for N16.4 billion, trailed by Okitipupa Plc with 170.4 million units worth N8.0 billion, and Air Liquide Plc with 507.5 million units valued at N4.2 billion.
InfraCredit Plc also finished the session as the most traded stock by volume on a year-to-date basis with 5.8 billion units transacted for N16.4 billion, followed by Industrial and General Insurance (IGI) Plc with 1.2 billion units sold for N420.2 million, and Impresit Bakolori Plc with 536.9 million units traded for N524.9 million.
By Dipo Olowookere
The upward trend witnessed at the Nigerian Exchange (NGX) Limited in recent sessions continued on Thursday as it further improved by 0.10 per cent.
This was despite investor sentiment turning bearish after the local equity market ended with 23 price gainers and 28 price gainers, indicating a negative market breadth index.
UAC Nigeria gained 10.00 per cent to finish at N88.00, Morison Industries appreciated by 9.94 per cent to N3.54, Ecobank rose by 8.53 per cent to N36.90, and Coronation Insurance grew by 8.47 per cent to N2.56.
On the flip side, Ellah Lakes depreciated by 10.00 per cent to N13.14, Eunisell Nigeria also shed 10.00 per cent to finish at N72.90, Transcorp Hotels slipped by 9.95 per cent to N157.50, Omatek shrank by 9.23 per cent to N1.18, and Guinea Insurance dipped by 8.46 per cent to N1.19.
Yesterday, the All-Share Index (ASI) went up by 152.28 points to 145,476.15 points from 145,323.87 points and the market capitalisation chalked up N97 billion to finish at N92.726 trillion compared with the previous day’s N92.629 trillion.
Customs Street was bubbling with activities on Thursday, though the trading volume and value slightly went down, according to data.
A total of 1.9 billion stocks worth N19.2 billion exchanged hands in 23,369 deals during the session versus the N2.3 billion valued at N21.0 billion traded in 21,513 deals a day earlier.
This showed that the number of deals increased by 8.63 per cent, the volume of transactions depleted by 17.39 per cent, and the value of trades decreased by 8.57 per cent.
For another trading day, eTranzact led the activity chart with 1.6 billion units sold for N6.4 billion, Fidelity Bank traded 31.0 million units worth N589.3 million, GTCO exchanged 28.3 million units valued at N2.5 billion, Zenith Bank transacted 27.1 million units for N1.6 billion, and Ecobank traded 21.9 million units worth N744.3 million.
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