Against the backdrop of the huge debt
service costs being incurred by the Federal Government, one of the
nation’s Deposit Money Banks, Guaranty Trust Bank Plc, has highlighted
the need for the government to reduce its borrowing cost.
The lender, in its ‘Macroeconomic and
banking sector themes for 2018’ released on Tuesday, also expressed
concerns that the upcoming 2019 elections might trigger repatriation of
capital by foreign portfolio investors.
It said the true deregulation of the
downstream oil and gas sector as well as the passage of the remaining
sections of the Petroleum Industry Bill should be on the front burner of
the government’s to-do list this year.
The bank noted that the Federal
Government in February 2017 successfully issued $1bn 2032 notes and
tapped an additional $500m a month later, adding that it raised another
$300m through Diaspora Bond issuance in June 2017 and then issued $3bn
dual-tranche notes comprising of 10 and 30-year Eurobonds of $1.5bn
each.
The DMB said the offering of a N10.69bn
Sovereign Green Bond for subscription by the Debt Management Office in
December “effectively brought total funds raised to over $4.8bn in a
single financial year.”
It stated that while the debt to Gross
Domestic Product was low at 16.2 per cent (in June 2017) relative to
Sub-Saharan African average of over 40 per cent, debt to revenue stood
at over 62 per cent in the same period.
According to the report, the DMO
revealed that the country spends 34 per cent of its revenue on debt
servicing, while acknowledging concerns about the country’s rising debt
profile and the need to bring this ratio to much lower levels.
GTBank added, “A portion of these funds
has been earmarked for refinancing existing domestic debt (which
accounts for around 80 per cent of total debt) to shift towards
lower-priced FX external debt.
“We expect the government to work
towards reducing its borrowing cost and also utilise these borrowings
(net of debt servicing) to fund infrastructural investments to stimulate
and reposition the economy.”
Citing the Q3 2017 report released by
the National Bureau of Statistics, the report said capital inflows
increased to $4.15bn, which represented a 127.5 per cent year-on-year
and 131.3 per cent quarter-on-quarter increase from $1.82bn in the third
quarter of 2016 and $1.79bn in the second quarter of 2017.
According to GTBank, the increase is due
to improvement in forex policy vis-Ã -vis importers and exporters’
window and the attractive yields in fixed income securities and
equities.
“We expect that the sustenance or
otherwise of these capital inflows will be largely dependent on the
stability of the prevailing FX and interest rate policies. In addition,
the upcoming 2019 elections might drive exit concerns of foreign
portfolio investors premised on political uncertainty and might trigger
repatriation of capital,” the lender said.
It noted that external reserves had
increased by 48 per cent year-on-year from $25.8bn in December 2016 to a
37-month high of $38.2bn in December 2017 on the back of increased
foreign investments, successful $3bn Eurobond issuance as well as higher
crude oil prices and production volumes.
“We expect that this commendable
accretion will be sustained throughout 2018 with positive investor
confidence and FX stability as key drivers,” the bank added.
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