| Obinna Chima Nigeria's Debt Situation Will Remain Vulnerable to Any Unexpected Large Drop in Oil Prices, a Report Has Said. |
The report also pointed out that Nigeria's debt would remain susceptible to other macroeconomic shocks, even as it urged the federal government to properly manage the situation.
The Ecobank Group gave this warning in a report titled: "Nigeria - Our Insight," obtained by THISDAY.
Disturbed by Nigeria's rising debt profile, the House of Representatives recently gave its House Committee on Aid, Loans and Debt Management a mandate to investigate what it called the "rising incidence of domestic public debts" owed local contractors across the country, which it said had so far risen above N6 trillion.
The mandate was given following a motion moved by the chairman of the committee Hon. Adeyinka Ajayi while presenting the findings of the committee on the subject matter.
Ajayi had said over N500 billion was being used annually to service domestic debts, adding that the House frowned on that as part of its oversight functions.
According to him, the domestic debt profile began to soar since the country exited the Paris Club debt in 2006, adding that, "the structured domestic debt profile of the nation stood at N6.1 trillion, while foreign debt stood at $6.7 billion or N1 trillion naira as at March 2013".
Beside this, Nigeria's external debt has also been on the rise in recent times. To this end, the Ecobank report pointed out that: "Nigeria's debt situation will remain vulnerable to any unexpected large drop in oil prices or other macroeconomic shock to the economy; this could lead to renewed debt distress.
"This factor will continue to weigh on the country's sovereign credit rating. Amid this and other factors, Nigeria's sovereign foreign currency long-term credit ratings remain below investment grade, albeit with a stable outlook."
But it noted that the outlook for Nigeria's ratings compared more favourably than that of South Africa, which has a negative outlook.
"Amid growing efforts to reduce external financing risk, federal government's domestic debt has emerged as the bigger share of total debt, reflecting increased efforts by the federal government to finance a larger proportion of its deficit from the domestic capital market rather than from international creditors.
"Federal government domestic debt has risen from $10.4 billion (11.7% of GDP) in 2004 to $43.4 billion (16.6% of GDP) in 2012. The stock of domestic debt is likely to remain much higher than external debt, although the government's recent effort to exercise fiscal prudence should see domestic borrowing fall, remaining well below the federal government's target of 30 per cent of GDP.
"Already, growth in domestic debt has slowed to 21.7 per cent, down from 40 per cent in 2010. However, despite the downward trajectory in domestic debt, debt-servicing costs remain high (amounting to $4.4 billion; nearly two per cent of GDP in 2012), reducing the fiscal space for investment in otherwise core areas of priority," it added. Continuing, the report said the move by the federal government to set aside N100 billion to be used to retire domestic debt would help the country, adding that plans to reduce the bloated civil service wage bill, alongside falling bond yields, would also go a long way in reducing domestic borrowing costs.
The Return of Wema Bank Last week, the management of Wema Bank Plc announced 18.3 per cent increase in its total deposits to N174.3billion in 2012 and a return to profitability in its 2013 half year results. The impressive returns also coincided with the successful completion of its N40 billion capital raising exercise, which commenced earlier in the year and which it says, will further bolster its return to profitability and top performance in 2013 in line with its multi-year strategic plan. One cannot but recognise the zeal and commitment of the bank's management, having to take over an institution, which was at the brink of collapse in 2008. That the Segun Oloketuyi-led management team is also planning to apply for a national banking licence is a proof of a clearly marked rescue package and I think this effort will attract shareholders' commendation at the bank's annual general meeting slated for next week..
Will Saka 'Port' Again? The controversy generated by the award-winning TV commercial, involving a popular actor called Saka, who at the commencement of the mobile number portability in April shifted base from Etisalat to MTN, may have simmered. But the data put out in the public domain last week by the Nigerian Communications Commission (NCC) indicated that the popularity of the TV commercial could not save the South-African owned mobile network from protest exit of some of its consumers in the first month of the scheme. MTN recorded 49 per cent of the overall subscribers that have switched service providers under the MNP scheme.
While latest data are being expected, the point has been made that Nigerian consumers are ready to make choices based only on performance.
Banks' Excess Charges The Central Bank of Nigeria (CBN) should be commended for its intervention in banks-customers relationship leading to the recovery of N9 billion excess charges imposed on customers by money deposit banks within one year.
The irony is that it was in 2012 when the industry recorded a profound return to profitability after a long period of losses. The superlative performance was traced to huge returns banks recorded through charges and commissions especially from depositors and borrowers. The charges include credit related fees, commission on turnover, charges on transaction notifications, remittance fees, and commissions, guarantee commission and inter-bank transfers, among others.
With the regime of higher cash reserve ratio on public sector funds, the temptation for banks to still see charges and commissions as cash crow would be irresistible. I believe the CBN may have to revisit its policy on public sector funds in the interest of the banking public. That is the best way to discourage banks from turning the heat on their customers.
NEED TO READ!!!
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