A professor of finance and capital market at the Nasarawa State University, Uche Uwaleke, has said the country’s debt service would only get worse with the increase in the Monetary Policy rate by the Central Bank of Nigeria.
Uwalake made the remark as the guest speaker at the monthly forum of Finance Correspondents Association of Nigeria (FICAN) in Lagos yesterday.
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In 2021, the federal government spent N4.22 trillion on debt servicing, increasing by 29.3% compared to N3.27 trillion spent in the previous year, while revenue for the period only increased marginally by 9.3% to N4.39 trillion
Nigeria’s fiscal position worsened in the first four months of the year as the cost of repaying debt surpassed the government’s revenue in the first quarter of 2022.
According to details of the 2022 fiscal performance report for January through April, Nigeria’s total revenue stood at N1.63 trillion while debt servicing stood at N1.94 trillion, showing a variance of over N300 billion.
CBN Governor Godwin Emefiele announced penultimate Tuesday during the 286th meeting of the Monetary Policy Committee held in Lagos that the Monetary Policy Rate (MPR) from 13 percent to 14 percent.
Uwalake said: “Debt service will increase as bond yield go up and this is why the fiscal authorities do not like a raise in interest rate but the CBN has a mandate to check the rising inflation.”
The First Professor of Capital market further argued that with the rising inflation rate, the impact of CBN’s tight monetary policy will be insignificant in taming inflationary pressure.
He said: “I feel that these monetary policy tools appear to have reached their limit in taming inflation. They are no longer effective because the cause of the inflation is not a monetary factor but a rising energy cost.
He said the Apex bank needs to focus on the development finance tools that will support production in the economy.
Uwalake said: “ The Fiscal authorities need to deal decisively with Insecurity challenges and the intractable challenge of importing petrol because we cannot afford using 30 percent of our forex earnings to import fuel.”
He also noted that the rrising exchange rates is due in part to exit of foreign investors as well as increased demand for forex by Politicians
Speaking on the options available to investors in the capital and money market, he said: “Clearly H2 of any pre-election year is not for risk-averse investors during electioneering period, Investors are advised to take a longer term perspective as H2 of pre-election year is a good time to identify and take positions in undervalued stocks especially in dividend aristocrats.
“To identify mispriced stocks, the application of ‘Tobin-Q’ or ‘Kaldor’s V’ and Price/Earnings ratios is advised.
“Ultimately, the best strategy to shield the headwinds is to stay with securities that have solid fundamentals as well as ensure a well-diversified portfolio of investments particularly during electioneering periods.”
