4 BUSINESS DAY C002D5556 Friday 13 April 2018 NEWS Nigeria Eurobond sales face higher refinancing risks – Fitch MICHEAL ANI Nigeria’s growing use of the international capital markets may increase refinancing risk as the amount of international debt coming due rises, US based rating agency, Fitch said . “Borrowing in foreign currency in international markets, exposes sovereigns to Foreign Exchange (FX) refinancing risk and a potentially higher debt service/GDP burden in the event of local currency depreciation,” it said. “Although it can appear cheaper if domestic interest rates are high, as in Nigeria, which used the proceeds of its February issue to refinance more expensive nairadenominated debt, it generally involves a net increase in risk,” The global rating agency added. Nigeria’s external debt as at December 31st 2017, touched $18.9 billion, according to data provided by its Debt Management Office (DMO). The federal Government through the ministry of finance in February 2018, successfully sold $2.5 billion of Eurobonds to compliment the $3 billion it raised in November last year, as part of its on-going debt restructuring strategy aimed at increasing external debts from 23 percent to 60 percent, and cutting down on domestic debts from 77 to 40 percent. Patience Oniha, Director General of Debt Management Office (DMO), said that “for government to plan execute its plan enunciated by the Economic and Recovery Growth Plan (ERGP), Medium Term Economic Framework (MTEF) and other associated fiscal strategies, it has to spend and borrowing is a mechanism to do that”. Also, the DMO said “borrowing has stimulated the economy and has helped lift it out of the recession”. More recently, sub Saharan African countries have shown increased appetite to tap from the Passport scarcity worsens as Immigration... Minister of Interior, had directed for the domestication of the production of the passport booklets. Dambazau said he had set up a committee, headed by the Comptroller-General of the Nigeria Immigration Service, to look into the local production of the document and resolve the challenge posed by its scarcity. He said the committee was also charged with the responsibility of exploring ways of starting the local production of the passport booklets, in view of the numerous advantages. A visit to passport offices in the Ikoyi and Festac suburbs of Lagos showed applicants on a long queue for passports. One of the applicants who identified herself as Mary said she had been coming to Ikoyi for the past two months and the im- Continued from page 1 year, the government had promised to explore local production as part of plans to save cost and ease the lingering scarcity of the document but has failed to execute same. He added that with the scarcity, government may not be able to realise its set target for revenue generation as it did last year. For two months now, Nigerian Immigration Service (NIS) has been unable to issue passports nationwide. BusinessDay gathered that two days ago, a new batch of passports were provided at Ikoyi office but they likely will be exhausted by today. Recall that Sunday James, spokesperson for the Nigeria Immigration Service, last year said Abdulrahman Dambazau, the international Debt market finance. This also continued through in first quarter 2018(1Q18), with issues from Kenya (USD2 billion), Cote d’Ivoire (EUR1.7 billion) and Nigeria (USD2.5 billion). Ghana’s parliament last month approved plans for a Eurobond issue. The International Monetary Fund recently warned that emerging economies face the mounting risk of a debt crisis, as their pace of borrowing in the international capital markets increases. Since 2013, the median ratio of public debt to gross domestic product in low-income countries has risen 13 percentage points to hit 47 per cent in 2017, according to new research by the IMF. The research found that 40 per cent of low-income developing countries face “significant debtrelated challenges”, up from 21 per cent just five years ago According the global agency, maturities of this debt might appear manageable in the near term, but public financial management (PFM) in the region is often weak, meaning that capacity to manage refinancing risk is an important factor in our SSA sovereign credit assessments. Tapping international capital markets can be an important financing option where liquidity in local funding markets is low. Long-dated international issuance can extend repayment schedules (Kenya and Cote d’Ivoire’s 1Q18 deals both featured 30-year tranches). Market access that allows for opportunistic international debt issuance is therefore beneficial for SSA sovereigns. However, the rise in debt since 2011, growing use of commercial funding, and in some cases currency depreciation have increased debt servicing costs in some countries. Seven of the 18 Fitch-rated SSA sovereigns had general government interest payments/revenues above 15 percent last year, the highest since at least 2000. Weak PFM could increase the challenge of transitioning from concessional to commercial fund- ing, and of managing the associated risks, such as exposure to tighter global monetary policy and the capacity to navigate interest rate and currency risks. It may also make Eurobond repayments and rollovers challenging, if market conditions were to deteriorate. World Bank data shows that Fitch-rated SSA sovereigns excluding South Africa will need to repay international public and publicly guaranteed bonds totalling USD6.5 billion in 2019-2023, up from USD1.4 billion in 2014-2018. PFM in these regions have seen some improvement, and IMF programmes often include efforts to strengthen it. In Cote d’Ivoire, for example, improved PFM under the country’s 2016-2019 programmes has helped reinforce the sovereign’s financing flexibility. But PFM weaknesses in the region are still apparent, for example in the tendency to accumulate arrears and the use of state-owned enterprises for quasi-fiscal operations. In some cases, such as the Republic of Congo (CC) and Rene Awamberg, global head of client relations, Afrexim Bank (l), with Donald Duke, former governor, Cross River State, at the Afrexim Bank-Russian Export Centre’s road show to boost Africa’s aviation infrastructure, in Abuja. NAN migration officers kept saying the passports are currently scarce. “I was supposed to travel to England last week but I was unable to travel because I have not been issued my passport. It took me over two weeks to get captured and now it is taking me another one month and a week to get my passport. This is so frustrating and I wish the government can quickly look into this and help us,” Mary said. Another applicant who identified himself as Ifeanyi said his three children were supposed to go for vacation in the United States but couldn’t because their passports were not ready 5 weeks after applying. BusinessDay observed that touts are using the passport scarcity as an opportunity to exploit applicants by collecting as much as N20, 000 to N25, 000 from ignorant Nigerians who are desperate to get their passports. Mozambique (RD), PFM deficiencies have resulted in a lack of transparency in the public finances and contributed to recent defaults. SSA Eurobond maturities are spread out over the next decade, but weak PFM still means there are risks associated with them. Weak PFM also means that upward pressure on government debt will persist, as it limits the capacity to implement consolidation plans and to contain spending and mobilise domestic revenue sources more fully. “We expect median SSA general government debt to be broadly stable this year at 52.6 percent of GDP, following a rise of over 20pp in the preceding six years. This reflects improved commodity prices and fiscal consolidation in some countries, including those with IMF programmes. (The total agreed amount of the IMF’s outstanding arrangements with SSA countries rose nearly fivefold between end-2014 and end-2017, largely in response to the commodity price shock,” Fitch said. A source at the office also told Business that Nigerians who reside outside the country have had to reschedule their flights in order to secure their passports. While NIS still provides revenue for the government by collecting passport fees from people, they have failed to provide services to the people paying for it. BusinessDay calculates that Nigeria through the Nigeria Immigration Service (NIS) is paying over N24 billion to Malaysia, Netherlands and South African based firms for production of its international passports. For Lagos state, on a daily basis, Ikoyi which issues the highest amount of passport, gives out an average of 800passports but has over 1000 as demand while Festac and Ikeja issue 1000 passports daily with over 1,400 demanded. Abuja issues out an average of 500passports daily, with over 800 Base effect moderates inflation to 13.34% in March … Analysts forecast single digit inflation rate in H2 ENDURANCE OKAFOR Nigeria’s inflation eased to 13.34 percent, yearon-year in March 2018, amid base effect and declining petrol prices, which is the lowest inflation rate since March 2016. It is also the fourteenth consecutive disinflation since January 2017, as compiled from the National Bureau of Statistics (NBS). The rate moderated by 0.99 percentage points in March from 14.33 percent recorded in the previous month. Although, the 13.34 percent inflation rate recorded in the period under review remains well above the 6-9 percent preferred band. “The slowdown in inflation is as a result of a combination of factors; largely reflecting Continues on page 33 demands. Kano, Asaba, Ogun and Ibadan which also ranks top in demand for passports issue out 500 passports altogether with almost 1000 demanded. Other states in Nigeria issue out an average of 2,000 passports daily with over 3,000 demanded. This implies that on a daily basis, passport offices across Nigeria issue out nothing less than 4,800 passports daily. BusinessDay’s checks show that for five working days in a year, passport offices across Nigeria issue out about 1,248,000 passports. Government spends about N19, 500 for the production of one passport. Last year, the NIS generated N38 billion as revenue locally. Sources close to NIS said the government can earn more than this amount if it produces passports locally.
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