Economic Outlook: The Nigerian FG’s Fiscal Move and NTB Auction
Prologue
Over the last few quarters, it has been observed that the Federal Government of Nigeria has been in a repetitive pattern of borrowing and debt servicing. In 2023, the Nigerian Government obtained ₦7.9 trillion from the CBN through Ways and Means Advances, which were said to be for the purpose of servicing its domestic debts. As of Q4 2023, Nigeria’s total debt profile stood at ₦97 trillion. This figure included local and external debts owed by all 36 states and the Federal Capital Territory.
Economic Outlook: The Nigerian FG’s Fiscal Move and NTB Auction
The first NTB auction for Q2 2024 was scheduled to be held last Wednesday. However, due to the national public holiday, the NTBs auction was rescheduled and took place last Friday. Recall that the last NTBs auction held on March 27 settled at 16.2400% for the 91-day tenor, 17.0000% for the 182-day tenor and 21.1240% for the 364-day tenor which doubled as the same rates from the previous auction.
At the end of the auction on Friday, the Central Bank of Nigeria (CBN) sold over N900 billion worth of bills that were settled on the same day. While the lowest and mid tenor rates closed at the same level as the last auction, the 364-day tenor fell to 20.7000% from 21.1240%, as observed in the last auction.
The NTB auction results were as follows:
In the course of the week, the Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, at a presentation to the Lagos Business School (LBS) Breakfast Club, disclosed the Federal Government’s plans to allocate approximately ₦4.83 trillion from the proceeds of the Nigerian Treasury Bills (NTBs) and Bonds issued in 2024 to settle the Ways and Means Advances from the Central Bank of Nigeria (CBN).
The Federal Government’s recurrent borrowing and debt servicing practices have raised concerns about the sustainability of its fiscal approach, particularly in attracting both foreign and domestic investors. Despite efforts to offset loans obtained from the CBN with proceeds from NTBs and Bonds, questions linger about the long-term viability of this debt management strategy.
At the end of May, Nigeria is expecting to receive the remainder of $1.05 billion from a $3.3 billion Afreximbank loan backed by oil revenues. These inflows aim to contribute to liquidity and increase foreign currency availability in the domestic exchange market. The Senior Executive Vice-President for Finance, Administration, and Banking at Afreximbank, Denys Denya, confirmed the verification of crude availability, paving the way for the remaining loan sum to be released next month.
Amidst rising debt burdens globally, the International Monetary Fund (IMF) projects that debt servicing could consume up to 14 percent of government revenue in Nigeria and other low-income countries. IMF Managing Director Kristalina Georgieva highlighted the impact of higher interest rates on debt servicing costs, stating the need for prudent fiscal management.
Furthermore, the IMF’s ‘Global Financial Stability Report, April 2024’ revealed that financial institutions worldwide lost $12 billion to cyber-attacks over the past two decades, with $2.5 billion recorded since 2020. Advanced economies, particularly the United States, bore the brunt of these cyber incidents, stressing the need for enhanced cybersecurity measures across the financial sector.
Following the recent proposal by the Federal Government to increase electricity tariffs and the announcement made by the NERC over two weeks ago, a report from the National Bureau of Statistics (NBS) has revealed that despite minimal improvements in power supply, the DisCos generated a revenue to the tune of ₦3.2 trillion over four (4) years. Thereby illustrating the significant disparity between revenue generation and service enhancement within the electricity sector. Consequently, investors may hesitate to allocate funds to companies within this sector, leading to reduced investment inflows.
Over time, this could adversely affect the performance of electricity sector companies, particularly DisCos, as investors may seek higher returns to offset the perceived risks associated with poor service delivery and regulatory uncertainties.
Market Highlight: Vol. 92
- Nigeria’s FX reserves dip by over $2 billion in less than one month, hitting the lowest level in over six years.
- BDCs now buying dollars at ₦980/$, naira appreciating faster than expected – ABCON President.
- Customs’ revenue at Tincan Port increases by 139% in Q1 2024.
- UBA seeks shareholders’ approval to issue 10.8 billion shares.
- Nigeria records ₦234 trillion e-payment transactions in Q1 2024.
- NGX urges FG to drive listings to deepen the capital market and boost tax revenue.
- Transcorp Power reports N28.772 billion pre-tax profit in Q1 2024.
- Egypt, Ghana, Nigeria, and others emerge as African countries with the highest T-bill yields in Africa.
- Pension Fund Administrators (PFAs) channelled 72% of investments in fixed-income assets in 2023
Local News
Nigeria’s crude oil production drops to 1.23 million barrels per day (bpd) in March 2024 — OPEC.
Elon Musk’s Starlink slashes internet price by 45% in Nigeria.
FG to sanction DisCos supplying less than 20 hours of electricity to Band A customers — Adelabu.
Reduction of diesel price to ₦1,200 will lower Nigeria’s inflation rate – Dangote.
NAFDAC recalls Benylin children’s cough syrup over toxicity concerns.
FG will provide a solar subsidy in Nigeria through a $750 million World Bank loan.
The Minister of Power is expecting a reduction in the electricity tariff as Naira strengthens in the FX market.
Lagos court grants Emefiele ₦50m bail.
Global Developments
World Bank projects an inflation rate of 15.1% for Nigeria in 2026.
Africa records decrease in maternal mortality – WHO.
Google nears $2 trillion valuation as stock hits all-time high.
Ethereum surges 8%, the highest-ever increase over a month.
Greece will introduce talent and tech visas, which are valid for one year for non-EU citizens.
World Athletics will award Olympic gold medallists with a prize of $50,000.
Russia, Germany, and the UK urge restraint as the Iranian threat puts the Middle East on edge.
Italy will invite African and South American leaders to the G7 summit.