Analysts Task FG on Private Sector Funding for Capital Projects
President Muhammadu Buhari

Analysts Task FG on Private Sector Funding for Capital Projects

Analysts at Cowry Asset Management Limited have advised the Federal Government to use private sector funding for its capital projects.

Modern economists, finance and strategy experts’ general view has shifted to public private partnership, but Nigeria is largely backward using this capital formation financing model.

Government policies over the years have skipped the use of private sector funding to support capital projects, which explains the burgeoning public debt which has skyrocketed since 2015.

On this note, analysts stated that given the huge debt stock and the attendant rising debt service, FG needs to swiftly formulate and implement the right policies.

Analysts Task FG on Private Sector Funding for Capital Projects
President Muhammadu Buhari

To the firm, the policies expectations should be the one that will encourage private sector funding of capital projects

FG indicated in the 2021-2023 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) presented to the National Assembly that proposed spending for the year 2021 would rise to ₦12.66 trillion, as against the 2020 approved budget of ₦10.80 trillion.

Of the ₦12.66 trillion 2021 proposed budget, ₦5.75 trillion (45.42%) was earmarked for recurrent expenditure, ₦481.41 billion (3.79%) for statutory transfers, ₦3.33 trillion (26.30%) for capital expenditure and ₦3.12 trillion (24.49%) for debt servicing.

Analysts said FG is expected to partly finance the proposed ₦5.16 trillion budget deficit with ₦4.28 trillion proposed loan package and ₦205.15 billion proceeds from the privatisation of federal assets.

In its recently released domestic debt figure, the Debt Management Office revealed that Federal Government of Nigeria’s (FGN) domestic debt stock rose to ₦14.53 trillion in Q1 2020 from ₦14.27 trillion in Q4 2019.

Meanwhile, analysts explained that domestic debt service payment jumped quarter on quarter by 140 % to ₦609.13 billion in Q1 2020 from ₦254.04 billion in Q4 2019.

Notably, the proposed 2021 budget was predicated on crude oil price benchmark of USD40 a barrel, higher than USD25 a barrel for the 2020 approved budget and crude production of 1.86 million barrels per day, lower than 1.91 million barrels per day.

Inflation rate was stipulated at 11.95%, which is quite lower than 12.56% it printed in June 2020 while the foreign exchange rate was set at ₦360/USD.

In another development, the Monetary Policy Committee (MPC) at the end of its meeting on Monday, July 20, 2020 voted to retain all policy parameters.

The Monetary Policy Rate (MPR) was retained at 12.50%; Cash Reserve Ratio retained at 27.50%; Liquidity Ratio retained at 30%; and Asymmetric band retained at +200 bps and – 500 bps around MPR.

According to the Committee, the decision to hold all policy parameters was amid the need to allow time for the transmission effect of the cut in MPR in May 2020 to permeate the economy.

Credits to Private Sector Increase to N28.67 trillion

The Committee noted that increasing MPR would counter its efforts and that of the fiscal authority to stimulate economic growth – as economic activities were dented by COVID-19 pandemic.

Notably, total gross credit increased to ₦18.90 trillion in June 2020, from ₦15.56 trillion in May 2020.

This was due to the fact that more credits recorded in manufacturing, consumer credit, general commerce, information and communication technology, as well as agricultural sectors.

However, the Committee expressed concern over the rising inflation, stating that the unprecedented increase in public spending to support households and businesses, in the wake of the pandemic, could spur inflationary pressure as the supply shortfalls struggle to meet up with the demand build up.

On the foreign scene, US crude oil input to refineries fell week-on-week by 0.70% to 14.21 mb/d as at July 17, 2020 (and lower by 16.56% to 17.03 mb/d printed in July 19, 2019).

Also, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose w-o-w by 0.92% to 536.58 million barrels (and higher by 20.57% from 445.04 million barrels as at July 19, 2019).

Nevertheless, WTI crude rose by 0.93% to USD41.07 a barrel; also, Brent crude rose by 1.04% to USD43.67 a barrel even as Bonny Light crude rose by 0.57% to USD44.12 a barrel as at Thursday, July 24, 2020.

The early submission of the 2021-2023 MTEF/SFP to the National Assembly should enable FG present its 2021 budget on time and sustain Budget Cycle of January to December – an enabler of proper budget implementation.

This, coupled with the sustained expansionary programmes by the apex bank, should have a positive impact on Nigeria’s economy.

Analysts Task FG on Private Sector Funding for Capital Projects