Analysts have advised the Federal Government to continue to hold off its external borrowing plans over the short-to-medium term in line with the global central banks’ monetary policy tightening measures

They advocated that most of the borrowing plans over 2023E to be carried out in the domestic capital market even as the Federal Government increases its reliance on CBN’s Ways & Means advances.

Besides, they maintained that they expect domestic investors to continue to dominate the domestic equities market over the short-to-medium term, even as higher FI yields may constrain buying activities.

They advocated that the CBN’s policies, including the cashless drive, should complement its price-stability objective, while fiscal interventions and Federal Government’s overdraft financing should be reviewed in light of current realities.

They advised that the apex bank should rethink its strategy around anchoring inflation expectations and financing conditions to reflect the same.

 

They added that the policy could be achieved by deepening financial depth, measured by private sector credit to GDP, and correcting misalignment of fixed-income market rates, which weakens the asset price channel of interest rate transmission.

 

They also said that efforts of Federal Government was needed to initiate policy measures that will also address political stability and security, legal and regulatory environment, and domestic market size as other influential variables to investors into consideration when designing fiscal strategies to attract investment and economic growth

 

According to Daily Independent, Analysts disclosed that the Federal Government can enhance excise rates on “sin goods” and establish excise on petrol and diesel at a token rate, while in the medium term, emphasis could be placed on rationalizing tax expenditures and in the long term to improve revenue from cross border transactions and other international tax measures.

 

The Debt Management Office (DMO) says Nigeria’s total public debt hits N46.25 trillion at the end of the fourth quarter (Q4) of 2022.

 

 

The DMO, in a recent statement, said the comparative debt stock for December 31, 2021, was N39.56 trillion — representing an increase of N6.69 trillion when compared with the latest figure.

The 2022 data is also an increase of about N2 trillion compared to the N44.6 trillion recorded in the third quarter of the same year.

DMO said the debt rise was due to borrowings for the purpose of projects execution and financing of the budget deficit.

The agency added that the issuance of promissory notes to settle liabilities also contributed to the growth of the domestic debt.

“In terms of composition, total domestic debt stock stood at N27.55 trillion, while total external debt stock was N18.70 trillion,” the debt office said.

“Among the reasons for the increase in total public debt stock were new borrowings by the federal government and sub-national governments, primarily to finance budget deficits and execute projects.

 

 

“The issuance of promissory notes by the federal government to settle some liabilities also contributed to growth in the debt stock.”

The agency, however, said ongoing efforts by the federal government to increase revenue from oil and non-oil sources through initiatives like the finance act and the strategic revenue mobilisation initiative are expected to support debt sustainability.

DMO said the total debt-to-gross domestic product (GDP) ratio for December 31, 2022, was 23.20 percent; a slight increase from the figure of December 31, 2021, which was at 22.47 percent.

“The ratio of 23.20 percent is within the 40 percent limit self-imposed by Nigeria and the 55 percent limit recommended by the World Bank/International Monetary Fund (IMF),” the organisation added.

“It is also within the 70 percent limit recommended by the Economic Community of West African States (ECOWAS).”

 

It would be recalled that Zainab Ahmed, minister of finance, budget and national planning, had said the federal government would finance the 2023 budget deficit by borrowing more.

 

Oyeyemi Kale, Partner and Chief Economist of KPMG Nigeria,said that Nigeria’s debt is only perceived to be too much because of the country’s poor repayment ability.

Kale,said conversations on the country’s debt profile would disappear if there is an improvement in revenue generation.

The Debt Management Office (DMO) had said Nigeria’s total public debt surged to N46.25 trillion at the end of the fourth quarter (Q4) of 2022.

The 2022 figure is an increase of N6.69 trillion compared to the N39.56 trillion recorded in 2021.

Kale, the former statistician-general of the federation said not enough revenue is being generated in Nigeria.

“Debt has 2 issues. What it is being used for & ability to repay. Debt/GDP represents capacity to repay & is 6-8-%, so there is revenue in the system to repay. But Debt/Rev which is ability to repay is poor at about 80% so not enough revenue is being retrieved from the system,” his tweet reads.

“If ability is enhanced through revenue reforms so that ability is raised towards capacity then the conversation about our size of debt disappears. Nigerian debt is only perceived to be too much because ability to pay is poor despite an arguably comfortable capacity to do so.

“In a nation that needs huge capital expenditure to develop, do we: ” Curtail debt in the presence of poor revenues which slows development; Borrow & focus energy on revenue reforms to repay debt; Stop borrowing & generate the revenue first which also slows development.

“By the way, there are many other models to fund needed investments but my post is focusing on the particular issue of debt and its issues related to revenue and needed expenditure.”

 

Dr. Muda Yusuf, Chief Executive Officer of the Centre For Promotion of Private Enterprise (CPPE), in a chat with Daily Independent, called on the Federal Government to reprioritise public spending to protect critical development expenditures and supporting economic activity and access to basic services and providing relief for poor and vulnerable communities are essential ingredients to avoid fiscal challenges.

Despite rising oil prices, he argued that Nigeria’s fiscal deficit is estimated to have widened further in 2022, thereby missing the opportunity to reap the benefits of higher global oil prices primarily due to high fuel subsidy costs and depressed crude oil output in the year

 

He noted that while the non-oil segment’s performance gives some credence to Federal Government’s diversification efforts into the three broad components showed that divergence lingers.

According to him, Nigeria has excise reforms through policy measures, property tax reforms by updating/completing property records and Value-Added Tax (VAT) administration and plugging compliance gaps as key areas of reform to improve revenue mobilisation as they had the potential to raise N4 trillion to N6 trillion.

He also tasked the Central Bank of Nigeria (CBN) to play a key role in pursuing unconventional monetary policies that will establish various channels to inject liquidity in the economy by expanding the options for lending to the private sector and to the government

“Part of the private sector support can be offered through rediscount credit lines to banks so that they, in turn, may maintain soft lines of credit for the working capital of companies, especially small and medium-sized enterprises (SMEs), including small and family farmers. Those soft rediscount lines (or even outright grants, using a non-bank channel) should require businesses to keep employees on the payroll.

“In particular, these lines of credit could be crucial to support operators in food systems (especially family farmers), the health sector, and other crucial activities”, he said.

 

Mr Adewale Oyerinde, Director-General of the Nigeria Employers’ Consultative Association, NECA,in a chat with Daily Independent, advocated the need for audacious fiscal reforms to create the required policy environment to salvage the oil sector, and boost economic growth.

Oyerinde, who emphasised that the Federal Government should ensure improvement of the performance of the agricultural sector for job creation and food security, also called for bold fiscal reforms such as subsidy removal and tax administration reforms that are of great essence to the success of the next administration.

 

“There is an urgent need for the Federal Government’s decisive fiscal and monetary tightening to ensure macroeconomic stability and structural reforms to improve governance, strengthen the agricultural sector, salvage the oil sector, and boost economic growth”, he said.

He added: “There is a need for decisive and effective monetary policy tightening to avoid de-anchoring inflation expectations.

“Federal Government needs to finalize securitization of the existing Ways and Means liabilities, while the CBN’s deficit financing should strictly adhere to the statutory limits.

“There is a need for a continued move towards a unified and market-clearing exchange rate to boost investor confidence, subdue capital outflow pressures, and rebuild buffers”.

 

An executive director of one of the new generation banks in Nigeria, told Daily Independent that reprioritizing of public spending by the three tiers of governments, the federal, states and local governments will protect critical development expenditures as well as support economic activities and access to basic services that would boost provision of relief for poor and vulnerable communities

He called for excise reforms through policy measures, property tax reforms by updating/completing property records and Value-Added Tax (VAT) administration and plugging compliance gaps to improve revenue mobilisation as they had potential to raise over N10 trillion annually.

“If the Federal Government can address foreign exchange liquidity issues through appropriate policy measures; address the challenge of high transportation and logistics cost; reduce fiscal deficit monetisation to minimise incidence of high-powered money in the economy; manage climate change consequences to reduce flooding and desertification the 3.8 growth potentials of the nation’s economy in the remaining quarters of this year is guaranteed”, the banker said.

 

Friday Udoh, Chief Coordinator, South-South, Institute of Chartered Economists of Nigeria (ICEN), advised that the Federal Government can mitigate the rising fiscal risk by implementing a national response plan that would focus on four interrelated spheres: health; the supply and demand of essential goods and services; the domestic financial circuit in local currency; and the foreign currency market, linked to international trade and external debt.

Afrinvest,in its Weekly Update : Record Trade Levels, Positive Non-Oil Collections, Sticky Inflation & Cautious MPC… Are Headwinds Subsiding?stated that: ”favorable showing of non-oil tax revenue channels, we anticipate that the actual budget shortfall for 2022 will surpass the projected amount of ₦8.2tn due to weaker-than-expected revenue generation from oil and gas (about 70.0%), autonomous inflows (about 33.5%), and government owned enterprises (about 51.6%).

 

“As a result, we propose that the incoming government undertake further reforms aimed at enhancing the business climate and reinforcing tax regulations to maintain the progress of stable income streams such as non-oil tax in the near term.

 

“We are of the view that the CBN should reconsider its approach to banking the Federal Government, as overdraft to the federal government is a major factor that is expected to raise the national debt level to unsustainable highs. Noteworthy, DMO’srecent publication shows total domestic debt stock had risen to ₦46.3tn as of 2022-end (2021: ₦39.6tn), a new record high.

“We believe that given current fiscal realities, the debt-to-GDP ratio could near DMO’s threshold of 40.0% before 2023- end without any visible impact on the economy as accompanying debt service requirement crowds out capital investments (Debt service-to-revenue has remained above 80.0% in the last three years).

“Regarding the liquidity concerns in the foreign exchange market, we suggest that the focus should be on addressing capital control policies and the multiplicity of the foreign exchange window, which have hindered the inflow of foreign exchange into the economy.

“The CBN’s policies, including the cashless drive, should complement its price-stability objective, while fiscal interventions and FG overdraft financing should be reviewed in light of current realities.

“Overall, we recommend that the CBN rethinks its strategy around anchoring inflation expectations and financing conditions to reflect the same.

Cordros Researchers Weekly Economic and Market Report (31-Mar-2023),stated that the recent data by the Debt Management Office (DMO), Nigeria’s public debt outstanding settled at NGN46.25 trillion (or 23.2% of GDP) in 2022FY, slightly lower than our estimate (NGN46.96 trillion).

“The debt print is 16.9% or NGN6.69 trillion higher than the NGN39.56 trillion outstanding public debt in 2021FY, reflecting (1) new borrowings to fund the budget deficits and (2) Federal Government’s promissory notes issuances to settle some liabilities.

“Accordingly, the breakdown provided showed a broad-based increase across the domestic (+16.2% y/y to NGN27.55 trillion) and external (+18.0% y/y to NGN18.70 trillion) debt stocks outstanding.

“Considering the elevated global interest rates in line with the global central banks’ monetary policy tightening measures, we expect the Federal Government to continue to hold off its external borrowing plans over the short-to-medium term.

 

“Based on the preceding, we expect most of the borrowing plans over 2023E to be carried out in the domestic capital market even as the FGN increases its reliance on CBN’s Ways & Means advances.

“Overall, barring the securitisation of the CBN’s W&M advances, we expect public debt to settle at NGN54.26 trillion in 2023E.

“According to the Domestic and Foreign Portfolio Report of the Nigerian Exchange Group (NGX), total transactions in the local bourse declined by 3.2% m/m to NGN188.91 billion in February (January: NGN195.10 billion).

“Going through the breakdown, we highlight that the domestic transactions (89.6% of total transactions) settled at NGN169.29 billion (January: NGN170.20 billion) while foreign activities (10.4% of gross transactions) declined by 21.2% m/m to NGN19.62 billion.

“We expect domestic investors to continue to dominate the domestic equities market over the short-to-medium term, even as higher FI yields may constrain buying activities.

“Also, FPIs who have exhibited a lacklustre interest in domestic equities are likely to remain on the sidelines due to elevated global uncertainties, sustained foreign exchange liquidity challenges, and tightening global financing conditions”.
-Daily Independent