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Why FG needs to borrow N1.6trn - Top analyst

Why FG needs to borrow N1.6trn - Top analyst

- A top Nigerian analyst in economics, Jimi Ogbobine, has said that the federal government needs some borrowing to fund infrastructure

- Ogbobine on Sunday, September 16, said that not less than N1.6 trillion should be borrowed in 2018

- However, he said that the implementation is unlikely to start before the second quarter of 2018 and revenue is likely to be lower than what was expected

A senior analyst at Agusto and Co, Jimi Ogbobine, has said that the federal government is expected to take more loans if its plans to fund infrastructure is to be realised, the News Agency of Nigeria (NAN) reports.

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Ogbobine said this on Sunday, September 16, at a training for financial journalists during the Finance Correspondents Association of Nigeria (FICAN) 2018 annual workshop in Lagos.

He said that the government was expected to deploy about N1.6 trillion to fund infrastructure this year. He said that the training, entitled, Analysis of the Macroeconomic Environment, organised by Rand Merchant Bank, was meant to deepen journalists’ knowledge of the economy and financial industry developments.

Ogbobine said the bulk of financing for infrastructure would come from borrowing with a larger share being domestic debts.

He also said funding the capital budget would require higher than planned borrowing with adverse implications for interest rates and interest costs for the economy.

“The Federal Government borrowing to fund infrastructure is likely to be between N1.2 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,” he said.

He added that obligatory spending of the federal government was still more than 100 per cent of revenues, hence, there was no free cash flow for investment in infrastructure.

“Every kobo of infrastructure spending is financed by debt constraints 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 & Africa. Federal Government plans to partly finance 2018 capital expenditure with proceeds of asset sales,” he said.

Speaking on inflation, he said a hyperinflationary environment was one where prices double at least every three years. “This means inflation rate of about 25 per cent per annum. In such environments, investors hold savings in low inflation currencies like dollars, Pounds Sterling and Euros.

“Also, business persons price products, particularly those with a high import content in these low inflation currencies, usually the dollar. In effect, such environments are ‘dual currency environments’.

“Real Gross Domestic Product per capita should grow in 2018, making it easier for businessmen to access forex to fund their operations. Therefore, most businesses should see top line and profit growths while unemployment rate will fall but the level will remain high,” he said.

The analyst said actual deficit might be lower than planned deficit largely because of a low implementation of the capital budget.

Ogbobine said that based on the long-term inflation difference, the naira-dollar exchange rate should close 2018 at about N420/1 in the Investors and Exporters’ FX Window.

He, however, predicted that should oil revenues increase, the CBN might try to keep rates in the market as close as possible to the current levels.

Ogbobine explained that despite recent contraction in Gross Domestic Product (GDP) growth, Nigeria remained Africa’s largest economy, following rebased GDP figures in 2013.

“Still a viable economy based on long-run projections. Significant issues with political stability, terrorism and scattered violence in certain areas.

“Heavily dependent on crude oil exports and facing severe economic challenges with the current global oil market shocks, terrorism threats and attacks on key economic interests,” he said.

The analyst said that average oil price for 2018 would likely be firmer, driven largely by OPEC production cuts, stronger growth, high but declining inventories and political tensions in the middle east.

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“A lot is still contingent on ability to produce and evacuate oil from the Niger-Delta. Demand management of imports will continue. If Nigeria is able to produce and evacuate crude, it will build reserves.

“However, some of the reserves will be used to intervene in the Nigerian Autonomous Foreign Exchange (NAFEX) market to keep exchange rates in this market at near current levels,” he added.

Meanwhile, Legit.ng reported that the rather disturbing political situations in Nigeria with some negative economic statistics had had a serious impact on the competitiveness of Nigeria’s stock market, leading to the crash of the ranking of the Nigerian Stock Exchange (NSE) to the worst performing in Africa 2018, after it was rated the best performing in Africa in 2017.

The NSE was also formerly ranked the third best globally in 2017 by ‘CNN Money’ after recording an awesome 48% returns on investments the same year, until on Tuesday, September 4, analyses revealed that the exchange All Share Index, ASI, fell by -11.3 percent.

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Source: Legit.ng

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