The Federal Government must take more loans if its plan to fund infrastructure is to be realised, according to the Senior Analyst at Agusto & Co, Mr Jimi Ogbobine.
Ogbobine said this on Sunday at a training for financial journalists during the Finance Correspondents Association of Nigeria 2018 annual workshop in Lagos, according to the News Agency of Nigeria.
He stated that the government was expected to deploy about N1.6tn to fund infrastructure this year.
Ogbobine said the bulk of financing for infrastructure would come from borrowing, with a larger share being domestic debts.
He also noted that funding the capital budget would require higher than planned borrowing with adverse implications for interest rates and interest costs for the economy.
He stated, “The Federal Government’s borrowing to fund infrastructure is likely to be between N1.2tn and N1.6tn. The implementation is unlikely to start before the second quarter and revenue is likely to be lower than planned.
“Actual funding from asset restructuring, recoveries and others may be substantially lower than the planned level of N2tn. Therefore, fully funding the capital budget will mean higher than planned borrowing with adverse implications for interest rates and interest costs.”
He added that the obligatory spending of the Federal Government was still more than 100 per cent of revenues, hence, there was no free cash flow for investment in infrastructure.
Ogbobine noted, “Every kobo of infrastructure spending is financed by debt, which constraints the ability to fully fund budgeted amounts. Debt as a percentage of revenue is significantly higher than the median of 200 per cent for countries in Middle East & Africa.
“The Federal Government plans to partly finance the 2018 capital expenditure with proceeds of asset sales.”
Speaking on inflation, he said a hyper inflationary environment was one where prices double at least every three years.
He added, “This means inflation rate of about 25 per cent per annum. In such environments, investors hold savings in low inflation currencies like dollars, pounds sterling and euros. Also, business persons price products, particularly those with a high import content, in these low inflation currencies, usually the dollar.
“In effect, such environments are dual currency environments. Real Gross Domestic Product per capita should grow in 2018, making it easier for businessmen to access forex to fund their operations. Therefore, most businesses should see top line and profit growths, while unemployment rate will fall but the level will remain high.”
The analyst said actual deficit might be lower than the projected deficit largely because of a low implementation of the capital budget.
