FG Plans Capital Spending Of N100bn In Coming Days | Independent Newspapers Limited
Newsletter subscribe


FG Plans Capital Spending Of N100bn In Coming Days

Posted: Aug 12, 2016 at 4:30 am   /   by   /   comments (0)

*Turns to Eurobond Market to Plug Budget Deficit

*Nigeria’s Debt-To-GDP Ratio Still Lower Than Peers


A plunging currency, inflation at a decade-high and a widening budget deficit is pushing Nigeria into recession. However, the nation has one thing going for it, a low debt profile.

That means it has room to tap international markets as it plans to spend its way out of an economic slump, according to analysts at Teneo Intelligence. The Federal Government had announced on August 8, 2016 that it was seeking banks to manage a Eurobond sale of as much as $1 billion, its first foray into the market since 2013.

“If you look at Nigeria’s debt profile, the additional external debt is not likely to have any material negative impact,” said Cheto, the London-based senior vice president at Teneo who spoke to Bloomberg.

“One thing is clear, however, the yield is likely to be higher than Nigeria’s last Eurobond sale in 2013, given that the macroeconomic fundamentals have deteriorated significantly.”

Yields on the country’s $500 million of bonds due July 2023 fell one basis point to 6.64 percent on Thursday. The yield is down 204 basis points this year. Nigeria’s dollar-denominated bonds have returned 1.9 percent this quarter, compared with the 4.7 percent average return of dollar debt in sub-Saharan Africa, according to data compiled by Bloomberg.

President Muhammadu Buhari approved a record N6.1 trillion spending plan this year after Nigeria’s economy contracted in the first quarter as revenue fell because of lower oil prices and a decline in output. The country’s ratio of debt to gross domestic product, at 13.2 percent, is the lowest in sub-Saharan Africa and about a third of the average of 37.2 percent, according to the International Monetary Fund.

Nigeria plans to borrow as much as $4.5 billion in the bond market through 2018, according to its Debt Management Office, as capital spending rises to about N1.75 trillion, more than four times the amount in 2015. The money will be spent on roads, railways, ports and electricity generation to support diversification of the oil-dependent economy into agriculture and solid-minerals development.

After shrinking 0.4 percent in the first quarter, the economy is set to contract 1.8 percent in 2016 as shortages of power and foreign currency curb output, according to the IMF. The Central Bank of Nigeria increased interest rates by 3 percentage points this year to 14 percent as inflation reached 16.5 percent in June.

The currency has slumped 38 percent against the dollar since the central bank allowed it to trade freely in the interbank market on June 20, removing a currency peg that had deterred foreign investment and squeezed importers.

“The recent devaluation of the naira is a barrier lifted,” Stuart Culverhouse, chief economist at Exotix Partners LLP, said by phone from London on Wednesday. “We have seen economies slow elsewhere and that shouldn’t be a barrier to raising debt.”

Meanwhile, Vice President Yemi Osinbajo on Thursday said the Federal Government will spend N100 billion on capital projects in the coming days as part of the 2016 budget.

Osinbajo also noted that a Presidential Economic Committee had been inaugurated by the Federal Government to ease the cost of doing business in the country.

Osinbajo said these during a Presidential Policy Dialogue Session organised by the Lagos Chamber of Commerce and Industry (LCCI) in Lagos.

The country is in the middle of its worst crisis in decades, as a slump in oil revenues hammers public finances and the naira. Gross domestic product shrank 0.36 percent in the first quarter and the central bank governor has said recession is likely.

Government capital spending so far has reached N332 billion, Osinbajo said.

Another N100 billion will be released in the next few days to fund power, housing, transport, agricultural and defence projects, the vice president said.

According to him, foreign portfolio investment (FPI) coming into the Nigerian economy via the capital market has declined by 85.5 percent since the first quarter of 2015, noting that foreign direct investment also took a plunge of 56 percent from $395 million in Q1 2015 to $175 million by Q1 of 2016.

He said FPI, which averaged $621 million in Q1 of 2015, had declined to $90.3 million by Q1 2016.

“Inflation is at 16.5%. Depreciation of the naira, increase in importation costs due to scarcity of forex. GDP declined from 6.3% in 2014 to 2.15% in 2015 and -0.36% in Q1 2016,” he said.

“Earnings from oil declined in the past eight months due to vandalisation of pipelines and export assets in the Niger Delta. Power output fell from 5kMW in February to about 2.5k recently on account of over 60% loss in gas production due to pipeline vandalisation.”

After stating the problems with the economy, Osinbajo highlighted steps the government is taking to revive it.

“In order to tackle these problems, permit me to elaborate on some of the steps taken in this regard,” Osinbajo said.

“Priority attention was given to assist the states and local governments pay the salaries of workers, which were several months in arrears. We have had three such interventions, including the latest loan of N90 billion as part of a fiscal responsibility plan for states.

“These interventions have helped to boost household spending, which were key steps to prevent the economy from falling into deep recession. We have pledged to keep capital spending in the budget at a minimum of 30%.

“Accordingly, we have already made capital releases of N332 billion, with another N100 billion set to be released in the next few days. Other policy instruments used in this regard include the TSA, which has brought transparency into inflows & outflows of government monies.

“A great effort has been made to improve non-oil revenues. This includes bringing an additional 700,000 companies into the tax net as compared to the targeted 500,000 set at the beginning of the year.

“FIRS has achieved 73.17% of its target for the first half of the year. Similarly, milled rice capacity is being increased from three million tons annually to 10 million tons of paddy annually.

“The present administration is a strong believer in public-private dialogue. Our immediate tasks is to achieve our economic objectives are: reduce fiscal and forex imbalances; boost dollar liquidity; curb inflation; lower interest rate and ensure lending to the real sector; increase FDIs and FPI by sustaining enabling policies.”

Sen. Udoma Udo Udoma, Minister for Budget and National Planning, said that the target of the presidential committee was to move the country 20 places up in the ease of doing business.

He said that the government would remove bottlenecks to create an expansive and productive economy.

Udoma said that the government would leverage on agriculture, mining and manufacturing to transform the economy.

Alhaji Aliko Dangote, Chairman, Dangote Group, said that the three tiers of government should collaborate with the private sector to solve the country’s economic challenges.

According to him, Nigeria is still the number one economy in Africa with a vibrant private sector.

He urged the government to address challenges that hindered the performance of the private sector for improved contribution to GDP.

Dr Ousmane Dore, Country Director, African Development Bank, said the bank was committed to accompany Nigeria grow economically.

Dore said that the bank would provide $2 billion intervention fund for the real sector of the country to improve employment opportunities and feed the nation.

Mrs. Nike Akande, President of LCCI, urged the government to improve its dialogue engagement with the private sector to generate feedback for favourable policies and economic growth.

She said that creating an enabling environment through infrastructure improvement would increase the level of investment in the country.

Akande urged the government to fast track palliatives to cushion the harsh effects of the economic climate.