Eben Enasco Reporting.

Specialists in the financial space in Nigeria have become devastated
flowing from the last Friday’s presentation of the 2023 Appropriation Bill, by President Muhammadu Buhari.

Although the President may have set the tone for another yearly liturgy, it is seen by financial professionals as unrewarding and has the potential of draining public finances with nothing significant to add to the economy.

According to a finance expert, who spoke to the Guardian of Saturday’s edition, David Adonai, the Appropriation Bill has been filled with spurious hypotheses and unrealistic targets.

Recall that President Buhari, on Friday, presented a spending proposal of N20.52 trillion to the National Assembly for consideration, describing the appropriation as a ‘Budget of Fiscal Consolidation and Transition.’

Experts drawing a line from the proposed financial bills said the spending outlays are stuffed with a deficit of 10.78 trillion or 52.5 percent of the total expenditure, an amount the President said would be funded with new borrowing, privatization proceeds, and “drawdowns on bilateral and multilateral loans secured for specific development projects/programs.”

However, given this position, financial experts have spurned the document as another painful reflection of the utopian and wild ambition that has defined national economic management in recent years.

Interestingly, the eighth and last budget in the life of President Buhari-led government is coming barely eight months to the end of the administration.

And with the implementation of the 2022 budget expected to run into next year, much of the execution of the proposed appropriation would be passed to the next administration, which is due on May 29, 2023.

David Adonai, an economist, and investment banker told The Guardian on Saturday that the budget is not fit for purpose and would certainly be reviewed for amendment by the next national administration.

He insisted that the extremely expansionary budget proposal is a mismatch with the current economic reality, which tends toward contraction.

Both the International Monetary Fund, IMF, and the World Bank have belittled growth prospects amid rising headwinds and rising interest rates across the globe.

Nigeria has seen the benchmark interest rate rise from 11.5 percent to 15.5 percent since May as the Central Bank of Nigeria, CBN, struggles to reinvent in inflation and stem possible massive fund outflow due to monetary normalization in the United States and other advanced economies.

The lofty interest rates mean a higher expense of borrowing, both domestic and external.

Already, the Federal Government sovereign bond yields have increased by over 100 percent this year with the 10-year bond averaging 13 percent.

While all governments are facing a cut-throat cost of borrowing, Nigeria’s emerging risks have added to the country’s burden.

Multiple reports have suggested that the country was gradually sliding towards a financial ‘blockade’ at the international financial market, as its working relationship with international development and funding partners, including the World Bank and the IMF, eroded to its worst level in recent years.

The outcome of the budget will surface with dire consequences for the prospect of raising cheap funds.

Already, the yields of Nigeria’s Eurobond have increased significantly, from an average of 6.5 percent at the start of the year to about 13 percent this month.

The Eurobond has a total face value of $500 million and was priced at about $103.473 when it was initially issued and closed on July 21, 2022, for $97.607.

According to data from the DMO, the 6.375% $500m JUL 2023 Eurobond yield has increased to 8.328 percent from 3.672 percent as of December 31, 2021.

Documented views from some analysts say the hike in interest rates tends to affect emerging markets as such Nigeria is one of them, stressing that it is expected to impact the cost of borrowing.

They noted that a rise in yield occurs when investors sell Nigerian Eurobonds forcing prices to drop and bond yields are inversely proportional to bond prices.

Several external factors such as the global hike in interest rates and high inflation rate have significant impacts on the cost of borrowing from the global market.

But Nigeria, specifically, is wallowing in a web of self-inflicted midst with some experts arguing that its rising risks and deteriorating sovereign rating would have contributed to the sudden sharp rise in the country’s already under-priced bonds.

Inflation erodes the purchasing power of a bond’s future cash flows.

Typically, bonds are fixed-rate investments. If inflation is increasing or rising prices, the return on a bond is reduced in real terms, meaning adjusted for inflation.

As a result, the price of existing bonds will increase.

However, if a bond’s price increases it is now more expensive for a potential new investor to buy.

The bond’s yield will then fall because the return an investor expects from purchasing this bond is now lower.

Recently, an American leading investment bank, JP Morgan delisted Nigeria from the class of emerging market sovereign recommendations that investors should be ‘overweight’ in.

Reasons given for the delisting imply that Nigeria’s fiscal woes amid a worsening global risks backdrop have raised market concerns despite a positive oil environment,” while it upgraded Serbia and Uzbekistan for their low risks.

The imitation’s decision is interpreted as a grave red light with negative implications for the country’s investment outlook and credit worthiness.

Nigeria’s government over time has often rebuffed Other credit rating agencies, including Fitch Ratings, which have raised countless questions about the country’s competitiveness while calling for reforms.

Fitch’s credit rating for Nigeria was last reported at B with a stable outlook.

In general, a credit rating is used by sovereign wealth funds, pension funds, and other investors to gauge the credit worthiness of Nigeria thus having a big impact on the country’s borrowing costs.

This page includes the government debt credit rating for Nigeria as reported by major credit rating agencies.

As of March twenty, twenty-two, the Director-General of the Debt Management Office, DMO, Patience Oniha, pegged Nigeria’s dept profile as of March 2022 stands at N41. 60 trillion.

Oniha, during her appearance at the ongoing engagement on the 2023 – 2025 Medium Term Expenditure Framework MTEF and Fiscal Policy Paper held by the House of Representatives Committee on Finance Thursday, attributed Nigeria’s high debt profile to a lack of revenues and approval of the annual budget with a deficit by the National Assembly which increased the debt stock of the country.

The rising blockade at the international market coupled with elevated interest rates, Adonai said, would make funding the 2023 budget a Herculean task.

However, Looking at the deficit is mind-boggling. It is unthinkable that the deficit is higher than that of this year’s budget considering that the economy is stretched.

Stretching the deficit means the budget lacks merit and rationality.

It’s expected that borrowing will increase, which means the budget funding will be extremely expensive and almost unaffordable considering the high-interest rate.

The indication is that the cost of servicing will be higher. Perhaps, we will be talking about debt to a revenue ratio of 200 percent.

The executive intended to fund 82 percent of the deficit or N8.8 trillion from fresh borrowing and the balance from elusive privatization proceeds and drawbacks from existing commitments from multilateral and bilateral institutions.

The inclusion of “privatization proceeds” as a funding option smacks the sincerity of the purpose of the budget execution and whether the government itself does not also think of the document as a mean rite.

Arguably, the Fiscal Deficit Grows By 400 percent Since Buhari’s First Appropriation, and Federal Government Risks more Funding Crisis As Debt Marker Dries Up with
estimates viewed by an economist, Adonai Contradicting Economic Realities.

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