" /> Forex crisis: $30bn loan in jeorpady | Hallmarknews
Published On: Mon, Feb 6th, 2017

Forex crisis: $30bn loan in jeorpady

 

Okey Onyenweaku
Anxiety is beginning to cloud the possibility of international lenders to give Nigeria the $ 30 billion she needs to restructure her sagging economy. The Nation’s economy which slipped into a recession in the first quarter of 2016 has continued to deepen the government’s desperation for far reaching solutions.
The recent drop in Nigeria’s credit risk rating by international rating agency Fitch from BB- to B+ has set many investors on the fresh task of reviewing risk-adjusted returns expected from the country’s sovereign gilt instruments. So far global investors have been content with a 3 to 4% return above London Interbank Offer Rate (LIBOR) but this may not subsist for much longer as the downgrade puts pressure on bond prices and calls for higher yields to maturity.
Bond traders have explained that a country’s risk rating refers to the risk of investing or lending in a country, arising from possible changes in the business environment that may adversely affect operating profits or the value of a country’s assets. For example, financial factors such as currency controls, devaluation or regulatory changes, or stability factors such as mass riots, civil war and other potential events contribute to companies’ operational risks. Analysts note that this term also refers to political risk.
Details show that the total cost of the projects and programmes under the Federal Government’s borrowing plan is $29.960 billion, made up of proposed project loans of $11.274 billion, Special National Infrastructure projects $10.686 billion, Euro bonds of $4.5 billion and Federal Government budget support of $3.5billion.
President Muhammadu Buhari, in an engagement with members of the national assembly, recently explained the need for the mammoth-sized loan pointing out that the country’s massive infrastructural deficit can only be effectively tackled by borrowing money from external sources over a five-year time horizon.
“Considering the huge infrastructure deficit currently being experienced in the country and the enormous financial resources required to fill the gap, in the face of dwindling resources and the inability of our annual budgetary provisions to bridge the deficit, it has become necessary to resort to prudent external borrowing to bridge the financing gap, which will largely be applied to key infrastructure projects, namely power, railway and road projects, among others.” He noted.
But this has elicited mixed feelings amongst Nigerian policy observers. The major problem they have with the loans is its size, tenor and the application of the money raised. Given the country’s notorious lack of accountability and fiscal transparency, local economists have suggested that the loans should be made fungible and scalable meaning that it should be disbursed only based on clear project milestones attached to schemes that are self-sustaining and self-financing. This would exclude projects that are of a pure social nature with no stream of potential future cash flow to pay back the debt. The overtly welfarist orientation of government could cause severe reservations in international bond markets if prospective sovereign bonds are not tied to specific projects with clear cash flow plans.
The finance ministers proposed European road show could, according to analysts, end up being an embarrassing fiasco if the minister does not present a formidable bond amortization template based on underlying project cash flows. Says Tajudden Olanrewaju of Goldcraft Investments, a local equity and bond trader, ‘You need more than grand ideas to make a bond issue work, it is less about guile than about clarity and commitment to a plan everybody knows can work. If you are going to get people interested in your bond they want know what the heck you are going to do with the money raised and how the heck you intend to pay back. Sovereign bonds are not general obligation instruments they are revenue instruments expected to raise cash from tangible projects’.
There is a concensus among domestic and international analysts that the nations country risk is quite high. Therefore, lenders and investors alike are cautious in dealing with Nigeria in terms of lending or investing. According to a few foreign traders the chances are tangible that you could see bond prices tumble as country’s like America raise domestic interest rates in the course of the year thereby putting pressure on fixed income yields in markets such as Nigeria’s.
Making matters worse, the instability in the foreign exchange market has woken doubts about the country’s ability to attract big ticket lenders.
Intense volatility has made it difficult to predict where the exchange rate will be in the next one month with the gap between the official rate at N305/$1 and the parallel market at about N495/$1 widening wildly.
Some investors have also fingered the structure of Nigeria’s economy as a challenge as it rests almost exclusively on Crude oil for about 90% of its foreign exchange earnings. The lack of diversity of foreign exchange cash flow serves as a strong impediment to its ability to smoothly generate dollar-equivalent local returns that can be repatriated without capital conversion constraints. Besides at a less technical level, Nigeria is considered notorious for mismanaging loans.
Some of the country’s creditors under a negotiated Paris Club agreement in 2005 had had to write off a crushing $18 billion or 60 per cent of the $30 billion debt Nigeria owed to the lending consortium at the time. The staggering write-off took place under the administration of former President Olusegun Obasanjo when the country was brought to its knees by its epic sovereign debt obligations.
Former Managing Director of defunct, ACB International Bank, Emma Nwosu believes that lending money to Nigeria by foreign lenders depends wholly on their expectations of how Nigeria restructures and transforms her economy.
Nwosu who expressed fear that Nigeria’s antecedent does not portray her as having the ability to manage borrowed money well, expressed scepticism about fresh foreign loans.
‘’Historically, Nigeria has never managed any loan process well. It has not transformed the economy. And no responsible lender will lend this money given our antecedent in managing loans’’, he said
Dr. Afolabi Olowokere of Financial Derivatives Company Limited, who shares Nwosu’s view reckons that ratings, risk and interest rate charges play very important roles in international lending.
Olowokere believes that there are lenders willing to lend you money no matter the risk. However, he explained the such lenders takes very high their interest rate. According to him, the down grading of the country may push the interest rate for borrowing by Nigeria to as high as 7 or 8 per cent.
‘’Paying back this loan in dollar is where the problem lies because the conversion rate is currently high and the productivity growth needed to support a better forward rate is doubtful. You get a sense that the government is waxing emotional where it should be thinking structural’’ said Olowokere.

READ  Post recession: Prices tumble, but demand stagnates

Interestingly, local and international investors are jamming their fists in their jaws, as they watch the country’s bond rating slip into junk territory, many have said, that negative economic indicators and a troubling macro-economic environment have kicked a cavity in the country’s capacity to raise new money at modest coupon rates.
There are still grave concerns that the lack of foreign exchange will hamper the economy, inflation has rather hit the roof top at 18.55 per cent as prices of consumer goods are now out of reach for the Nigerian populace, Unemployment stands higher than 12.5 per cent and still rising.

READ  Anti corruption: IGP Idris in the dock

‘’While Nigeria’s economy will probably expand at 1.5 percent this year, after contracting by an estimated 1.5 percent in 2016, the non-oil industry will continue to be constrained by foreign-currency shortages.
“Access to foreign exchange will remain severely restricted until the Central Bank of Nigeria can establish the credibility of the interbank foreign-exchange market and bring down the spread between the official rate and the parallel market rates,” Fitch said.
The rating agency also noted that government’s debt remains low at 17 percent of gross domestic product, there is fear that the shortage of state revenue poses serious risk for the country. According the rating agency the government’s debt stood at 281 percent of revenue as of end 2016, and while 77 percent of that is domestic, foreign-currency borrowing is increasing.

Leave a comment

XHTML: You can use these html tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Recent posts

  • Nigerian media needs to be more entrepreneurial, says UK multimedia expert

    Dan Mason is a British media consultant and trainer, who has spent the last nine years training journalists around the globe on digital communication and social media. The Leicester-born managing consultant of Dan Mason Media, who recently clocked 60, was managing editor, Newsquest, London, former editor, Birmingham Post and Coventry Newspapers all in the United […]

  • Post recession: Prices tumble, but demand stagnates

    JOHNMARK UKOKO Few weeks after the Director General of National Bureau of Statistics (NBS) , DR Yemi Kalejaiye, announced that the country has exited recession, the prices of many brands have begun to fall, while some brands have yet to reduce their prices. Investigations conducted by BusinessHallmark showed that, many brands which jerked up their […]

  • Intels threatens NPA over termination of its multi-billion naira contract

       FUNSO OLOJO The Nigerian Ports Authority (NPA) and its long standing business partner, Intels Nigeria Limited, are now locked in a fierce battle of wit over the cancellation of its multi-billion naira contract. The war of attrition between the two business partners was triggered by the October 10th letter addressed to the Oil and […]

  • Shareholders call for sack of Oando Management as crisis worsens

    OKEY ONYENWEAKU These are tough times for local oil and gas giant, Oando Nigeria Plc and not many of its shareholders are smiling. The company has been embroiled in a series of crisis over the last three years and each predicament appears to have been worse than the previous one. The company’s shareholders have shown […]

  • November 18 poll: Gov. Willie Obiano’s mother of all battles

    By OBINNA EZUGWU A few days ago, a picture that told what many believe to be the story of Gov. Willie Obiano’s nearly four years stewardship in Anambra State trended online. It was a picture of a large shoe worn by a tiny leg. The large shoe was labelled Obi’s big shoe, and the tiny […]

  • Ballooning debt threatens Nigeria’s feeble growth

    By Okey Onyenweaku Nigeria’s ballooning debt profile has again caught the attention of International financial agencies, as the country’s budget deficit continues escalate. The International Monetary fund (IMF) a few days ago in Washington D. C in the United States of America, USA, expressed concern over Nigeria’s and other oil producing country’s rising domestic and […]

  • Editorial (Anti-corruption: The President moral burden)

    Recent developments in the government point clearly that the anti corruption policy, which had been the mantra of President Buhari both for his election as well as legitimacy, is unraveling. For a government that has made so much political capital of fighting corruption to now be enmeshed in very serious cases of corruption, abuse of […]

  • NNPC: President Buhari’s house of corruption

    NNPC in public consciousness is synonymous with corruption, Adebayo Obajemu takes a look at the series of landmark corruption allegations that define the oil giant KPMG in its report on corruption in NNPC gave a damning verdict. As far as the 41-page report is concerned, the NNPC is a cesspool of monumental corruption and fraud. […]

  • Nigeria has reached breaking point – Awolowo- Dosumu

    Nigeria’s former Ambassador to the Netherlands and daughter of the late sage, Chief Obafemi Awolowo, Dr. (Mrs) Tokunbo Awolowo-Dosunmu has noted that it would be unwise for the government to continue to ignore calls for the restructuring of Nigeria as according to her, it was the only way to put the country on the right […]

  • Plantain chips and moneymaking

    By DANIEL ZUBAIR It is estimated that about 70 million people in West and Central Africa derive more than 25% of their carbohydrates from plantains, making the staple food one of the most important sources of food energy throughout the African lowland humid forest zone. Nigeria is one of the largest banana and Plantain growing […]

  • Anti corruption: IGP Idris in the dock

    By OBINNA EZUGWU In June 2016, seven Deputy Inspectors General (DIGs), including Danazumi Doma who was in charge of Finance and Administration; Sotonye Wakama who was in charge of Operations; Mamman Tsafe, who was in charge of Logistics and Supplies; Kakwe Tsatso of Criminal Investigations and Intelligence; Hashimu Argungu, Training; Jubril Adeniji, Research and Planning; […]

  • Withdraw soldiers from the South, address unresolved national questions, ILT charges Buhari

    By OBINNA EZUGWU Rising from its plenary meeting in Enugu on Monday, Igbo Leaders of Thought (ILT) condemned in its entirety, the deployment of soldiers in the South East zone in the name of Operation Python Dance 11 and the resultant humiliation and loss of lives, particularly in Abia State. It, therefore, called on the President […]

  • Nigeria spends $400m annually on pesticides – NSPRI

    The Executive Director, Nigerian Stored Products Research Institute, Prof. Olufemi Peters, has said Nigerian farmers and agro-based companies spend $400m annually on pesticides. He also said that improper pesticide use had caused millions of people to frequently fall sick across the country. He spoke during NSPRI training workshop on ‘the use of inert atmosphere silos […]

  • 200 Chinese investors to invest in Nigeria

    FELIX OLOYEDE No fewer than 200 Chinese mining companies have declared interest to invest in Nigeria’s mining sector. Business Hallmark gathered that the Minister of State in the Ministry of Mines and Steel Development, Bawa Abubakar, in September, led Nigeria’s delegation to the China Mining Conference in China. During the conference, Nigeria and China organised […]

  • Leasing Industry Targets Nigerian Healthcare Development

      By FELIX OLOYEDE The Equipment Leasing Association of Nigeria (ELAN), has moved to further contribute to the healthcare sector in Nigeria in line with its developmental role. The move is aimed at enhancing development contributing to the repositioning of the sector targeted at meeting the huge infrastructure and other challenges affecting the sector. The […]

  • Banks to commence N26bn Agric SME fund disbursement this quarter

    FELIX OLOYEDE Deposit money Banks (DMBs) will begin the disbursement of the N26 billion intervention fund set aside for the development of the agricultural Small and Medium Enterprises (SMEs) before the year runs out. The fund would be disbursed to Agric SMEs as entity contribution and the disbursing lenders would also provide mentorship and hand-holdin […]


Visit us on Google+