Omodele Adigun
Despite the apprehension of Central Bank of Nigeria (CBN) on the growing level of sovereign debts, leading global institutional investors swooped on Nigeria’s eurobond last week and over-subscribed it to the tune of over $9.5 billion.
According to the Federal Government, this demonstrates the ongoing confidence of international capital market investors in Nigeria’s investment story.
Commenting on this, the Director General of Debt Management Office (DMO), Patience Oniha, said: “Nigeria’s continued ability to access the international markets to raise capital is a testament to investors’ confidence, which has been supported by continuous engagement with them on various reform initiatives and outcomes.
The issuance of the eurobonds, which received the prior approval of the Executive and Legislative arms of government, will not only provide capital to finance various projects, but also contribute towards the achievement of the Debt Management Strategy.
The ability to raise $2.86 billion, which is the exact amount government needed in volatile and challenging market conditions has been described as a stellar outcome.”
But Oniha’s enthusiasm does not excite CBN, which recently warned that the economy might slip back into recession on account of the growing level of sovereign debts.
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According to its Governor, Godwin Emefiele, “there was a fresh threat of recession as the economy recorded growth rate of 1.95 per cent and 1.5 per cent during the first and the second quarters of this year respectively.
The slowdown emanated from the oil sector, with strong linkages to employment and growth, late implementation of the 2018 budget, weakening demand and consumer spending, rising contractor debts, and low minimum wage were some of the risks to output growth.
Others are the impact of flooding on agricultural output, continued security challenges in the North-East and North-Central zones, and growing level of sovereign debts.”
But explaining why the Federal Government needs more borrowing, Mr. Imi Ogbobine, Senior Analyst at Agusto & Co, said funding capital projects requires higher than planned borrowing with adverse implications for interest rates and interest costs for the economy.
The Federal Government intends to use the proceeds of the latest eurobond to fund fiscal deficit and other financing needs. These triple series notes represent the sixth eurobond issuance of the Federal Government following issuance in 2011, 2013, two in 2017 and one in early 2018 and this first triple-tranche offering.
He explained that the Federal Government is expected to take more loans if its plan to fund infrastructure is to be realised.
His words: “The Federal Government’s borrowing to fund infrastructure is likely to be between N1.2 trillion and N1.6 trillion.
The implementation is unlikely to start before the second quarter and revenue is likely to be lower than planned. Actual funding from asset restructuring, recoveries and others may be substantially lower than the planned level of N2 trillion. Therefore, fully funding the capital budget will mean higher than planned borrowing with adverse implications for interest rates and interest costs.”
And true to Ogbobine’s forecast, the Federal Government was reported to have recently recorded a huge revenue shortfall when compared to budget estimates.
According to the Economic Report for August 2018, released last Thursday by CBN, the estimated federally collected revenue (gross) took a dip in August as against the preceding month.
The report stated: “At N745.52 billion, estimated federally collected revenue (gross) in August 2018 fell below both the 2018 monthly budget estimate of N1.1 trillion and the receipt in the preceding month of N947.62 billion by 32.7 and 21.3 per cent respectively.
“The decline in the monthly budget estimate was attributed to a shortfall in both oil and non-oil revenue. Oil receipts at N403.59 billion or 54.1 per cent of total revenue was below the monthly budget estimate of N640.21 billion by 37 per cent, as well as below the preceding month’s receipt of N513.54 billion by 21.4 per cent.
The fall in oil revenue relative to the monthly budget estimate was attributed to the drop in crude oil production arising from repairs and maintenance of oil facilities at various NNPC terminals.”
Speaking during the Finance Correspondents Association of Nigeria (FICAN) 2018 Annual Workshop in Lagos last month, Ogbobine had observed that the obligatory spending of the Federal Government was still more than 100 per cent of revenues, hence, there is no free cash flow for investment in infrastructure.
He stated: “Every kobo of infrastructure spending is financed by debt constrains ability to fully fund budgeted amounts. Debt as percentage of revenue is significantly higher than the median of 200 per cent, for countries in Middle East and Africa.
Federal Government plans to partly finance 2018 capital expenditure with proceeds of asset sales.”
