FAAC Allocation Inflow Reduces Cost of Funds

26 Nov 2012

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Mrs Ngozi Okonjo-Iweala

By Obinna Chima
The Nigerian Interbank Offered Rates (NIBOR) reduced to an average of 13 per cent on Friday, compared to the 14.23 per cent it stood the preceding Friday as part of the funds disbursed by the Federation Accounts Allocation Committee (FAAC) to the three tiers of government hit the system.

FAAC had shared a total of N640.766 billion for October among the three tiers of government. The gross revenue for the month stood at N640.766 billion, about N46.065 billion higher than the N594.701 billion generated in the previous month.
But an evaluation of the NIBOR rate showed that all the tenor at the short term market for borrowing among commercial banks reduced.
In fact, just as the overnight tenor dropped to 10.58 per cent on Friday, from 12.08 per cent the preceding Friday, the 7-day tenor also lowered to 10.96 per cent, from 13.12 per cent.

Similarly, whereas the 30-day tenor reduced to 11.79 per cent, from 13.83 per cent, the 60-day tenor also fell to 12.12 per cent on Friday, from 14.25 per cent the preceding Friday.

Forex Transactions
At the Wholesale Dutch Auction System (WDAS) last week, the Central Bank of Nigeria (CBN) offered a total of $400 million to dealers. This represented an increase of $50 million, compared to the $350 million offered the preceding week However; the performance of the naira against the United States dollar at various segments of the forex market monitored by THISDAY was mixed.

For instance, at the interbank market, the local currency improved by 75 kobo to close at N157.75 to a dollar on Friday, compared to the N158.50 to a dollar it attained the preceding Friday.
But at the WDAS, the naira dipped slightly by one kobo, to close at N155.76 to a dollar, from N155.75 to a dollar the preceding week. The naira was stable at the parallel market.
The Nigerian Export and Import Bank (NEXIM) last week stressed the need for enhanced capitalisation for it to enhance its operations. Managing Director, NEXIM, Mr. Robert Orya, said that with N250 billion, NEXIM would be able to contribute more to the growth of industries in the country.

He said: “We have to look at the prospect of trade growth in Africa and in Nigeria looking at the size of the economy. If you give me (NEXIM) N250 billion, I can make a lot of impact considering the size of our economy. Looking at the non-oil sector, such fund will be enough to stimulate growth.”
Oil Benchmark
The CBN Governor, Mallam Sanusi Lamido Sanusi, last week urged the Federal Government and the National Assembly to borrow from the Chilean experience by setting up an independent legal body that would be saddled with the task of setting the benchmark crude oil output and price to avoid the perennial rancour between both arms of government on budget benchmark every year. Sanusi said the independent body of experts should be shielded from political interference and interests, stressing that several countries with a commodity price-based budget rule have also borrowed from the Chilean example.

According to him, “This idea that after going through a technical, detailed process, the Ministry of Finance comes out with a number and then the National Assembly sits down and says I don't like this number and I want to increase it, is only possible because we've not institutionalised this process.

“So it will be very good to not just say you use a benchmark number but have a legal framework for determining a benchmark and clarity so that the decision is not political.”
MPC Outcome
The Monetary Policy Committee (MPC) last week resolved to leave the Monetary Policy Rate (MPR) at 12 per cent with a corridor of +/- 200 basis points, while retaining the Cash Reserve Ratio (CRR) at 12.0 per cent and the Liquidity Ratio at 30 per cent. Sanusi at the meeting also reaffirmed the committee’s support for maintaining the $75 per barrel proposed by the finance ministry for the 2013 budget, noting that this had become more critical on the back of evidence that output projections may have been overly optimistic.
The CBN governor said the developments in the global economy, which were characterised by general uncertainty on the back of deceleration in global growth sustained by the fragile financial conditions, weakening labour and housing markets and deteriorating public and private balance sheets across advanced and emerging economies were noted by the committee.

He said such trends had adverse implications for the domestic economy and required careful consideration in arriving at an appropriate decision on monetary policy.
The Nigerian economy grew by 6.48 per cent in the third quarter of this year, while inflation which had fallen in the past three consecutive months increased to 11.7 per cent in October from 11.3 per cent the previous month, latest data from the National Bureau of Statistics (NBS) had shown.

“While the oil sector witnessed positive growth for the first time in four quarters, the slower non-oil sector growth was driven by growth in activities recorded in the building and construction, cement, hotel and restaurant, and electricity sectors,” the NBS said.
The oil sector contribution to real GDP in the third quarter stood at 13.42 per cent, from 14.28 per cent within same period in 2011. But the non-oil sector remained a major driver of the economy with 7.55 per cent growth in real terms compared with 8.76 per cent in the previous year.
Public Debt
The Director-General, Debt Management Office (DMO), Dr. Abraham Nwankwo, last week said there was nothing wrong in borrowing as long as the proceeds were used for the purpose for which they are meant.
He stated that for a developing nation like Nigeria it was necessary for it to record faster economic growth with consistent flow of investment, stressing that this could also be possible if it collected loans to meet up with such developmental challenges.

According to him, borrowing and incurring debt are not an anomaly, as far as the money collected is used judiciously and appropriately accounted for in terms of project financing projects, provision of dividends of democracy to the people and the reduction of waste.
The director-general emphasised that the country required an inflow of about $10 billion, from foreign direct investment, every year in order to tackle its infrastructural deficit in the forthcoming decade.
Mobile Banking
Sanusi also said last week that the value of transactions through mobile banking had increased significantly to N4 billion monthly, compared to the N20 million it was beginning of the year.

He also revealed that out of the 160,000 Point of Sale (PoS) terminals deployed in Lagos, only about 25,000 are functional, assuring that the apex bank would continue to work with telecommunication companies to ensure that the PoS machines are effective.

He added: “We started this year with about 10,000 PoS terminals in Lagos, today; we have about 160,000, and about 25,000 active. We started mobile banking effectively this year, and we have moved from moving N20 million a month on telephones, to N4 billion a month, and the numbers are going up.

“Today we have huge transactions going on through Automated Teller Machines (ATMs), PoS, through internet banking and we will continue building.”
Lagos Bond
A completion board meeting convened by the Lagos State Government last week authorised the state to float Series 1 Bond Issuance of N80 billion to enable it complete some on-going infrastructural projects. The amount is the first tranche of the state’s N167.500 billion debt issuance programme expected to terminate in November 2019.

Governor Babatunde Fashola emphasised that the debt to be raised would not be used to pay salaries or buy fuel, but would go into “hard critical long tenure infrastructure that would give the people an opportunity to look to tomorrow with confidence.”
According to Fashola, projects like bridges, roads, schools, hospitals and clinics are some of the projects to which the funds would be deployed. 

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