Akanbi_edu: Talk is cheap.

over-intellectualizing Morafuckers.

hypeman: Impressive achievement by the young state... The investors must have certified the credibility of those in-charge of the finance of state and scrutinised what the bond is intended for, before pledging to offer the bond... and when you put into consideration that the bond offer was over-subscribed - that shows that the inventors believe in the Osun state government...

The new governor has started well IMO - and he needs to consolidate on his efforts...

Gbawe:

My brother, you once advised me to ignore. That is what I do these days. It is certainly obvious some only come here to fight and curse others. Those sort are best ignored. The only productive way to use this forum, full of frustrated folks and malevolent folks, is to limit your talk to reasonable and courteous people and ignore uncouth elements here who are perpetually angry and bellicosely confrontational. You don't owe those sort anything. Not even a response. Indulging them only ends one way and you yourself know that.

Anyone can over-analyze as much as they want. I am personally excited for Osun State. Of course the good people of the State, especially the enlightened ones, must be vigilant to ensure that Government spending is seen, felt and relevant.

aribisala0: your father and mother!! If dem no face me I face dem. Sango lo ma paa won

Akanbi_edu:

Right bro, just that sometimes I feel like playing around.



Good to know you know I am a morafucker. Sango lo ma paa iya mi

miqos02: borrowing 22billion @ over 10% for 7years is unreasonable

emiye: For those against the bond offer rate.

What then is the "commendable rate" for a fixed development bond of 7 years ? 2% , 5% , 10% or .....?

Do you understand the time value of money , especially in a country like Nigeria ?

From my understanding the principal amount will only be matured for payment in 7 years?

Will N22 billion of today in Nigeria has the same value of N22 billion in 7 years from now ?

This is not a commercial loan, it is a bond !

aribisala0: 14.5% interest rate is not the sign of confidence.On the contrary it reflects the exact opposite. There are long term(30 year funds) on the market They are not just accessible to debtors with weak or bad credit and that is why Osun State cannot access those funds.

What this exposes,in fairness to Osun, is most Nigerian State governments are not viable financially.
Nothing political here and this is not really Aregbesola's fault but borrowing the UNPAYABLE is NOT the way to go.


A stare that raises less than 15 billion a year in IGR borrows more than its annual IGR at 14.5 which means servicing THIS debt with 20% of IGR . PLus there are OTHER DEBTS from OYINLOLA and also taken by him. We must ask can they ever pay the Capital

Imagine a man borrowing twice his annual income at 14.5% .

emiye:

I don't think the State IGR will remain stagnant over the years, as long as there is a steady commitment by the state government to raise the IGR, possibly geometrically . I am aware the state IGR has doubled from what it use to be.

aribisala0:
No one knows and that is part of the risk IN ANY COUNTRY not just Nigeria. The markets are right to think about that. But we are thinking about the perspective of the state . I.e. is it good for Osun State.

Where will that Principal come from?? Osun is generating 500 million a month . Where will 22 billion come from in 7 years?.

They will reschedule the loan and service it for ever and that is why we are raising questions.

emiye:

If don't have an idea of the "commendable rate", then how do you have an idea of the "condemnable rate" ?

emiye: i asked earlier, what is the "optimal rate or commendable rate " that Osun state should have obtained the bond ? which i believe you said you dont know, then how do you know the 14.75% rate is condemnable?

hypeman:

However, have you bothered to check what the bond is earmarked for and why the investors(capital market) were willing to put their money where their mouth is?? If they could have gotten the bond at a lower rate, I doubt they would have opted for the higher rate...

Nigeria: FG, States and Local Govt Must Borrow Responsibly
BY OMOH GABRIEL, 19 NOVEMBER 2012
RELATED TOPICS
INTERVIEW

At the last IMF/World Bank Annual Meetings in Tokyo, debt sustainability took the center stage as financial egg heads from all over the world gathered to deliberate on the way out of the sovereign debt crisis currently crippling the Euro Zones. At the seminar on debt sustainability, Abraham Nwankwo, Director General, Nigeria's Debt Management Office, DMO, was there and had a brief chat with some Nigeria journalist at the workshop.

Excerpts

States have embarked on aggressive borrowing through the capital market. Given that most of them have internally generated revenue (IGR) that are so low and as such depend on federal allocation and oil. Supposing something happens, how sustainable is the borrowing by the states?

The issue of borrowing is global. Borrowing is for regions, countries both developed and undeveloped. It is for states, provinces and households. So first of all, let me make it clear that it is specifically wrong, politically and methodically to single out states and start talking about states borrowing or not borrowing. We have to say that whether as an individual, family, school, organisation, company or country, you have to borrow responsibly. So let me make it clear that there is nothing that makes borrowing by a state sinful in itself. Every economic agent should borrow responsibly.

In the case of Nigeria, of course states borrow within acceptable limits .[size=14pt]There are rules and guidelines and states follow those rules and guidelines. First of all, no state in Nigeria can borrow from the capital market without following the process of borrowing. There are guidelines that apply to every government entity that wants to borrow from the capital market and those rules have been there and are still there and they are being enforced by Security and Exchange Commission (SEC) through the Investment and Security Act as amended.
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There are terms and conditions for any entity whether private or public that wants to borrow from the capital market. So, it is for SEC to ensure they monitor states or make sure that whoever wants to borrow comply with the various specifications in the Investment and Security Act 2007. Hence, the procedures, which private companies that wants to borrow from the capital market undergo is the same with that of the states in the hands of SEC.

Secondly, in the case of states, because they are government entities and sub nationals, they have additional regulations and monitoring guiding them as contained in the Fiscal Responsibility law in the Debt Management Office Act, and based on the authority given to the DMO and the authority given to the Minister of Finance in the Fiscal Responsibility Act, states are also enforced to comply with additional requirements beyond what is already provided in the Investment and Security Act.


So, linking states' ability to service their debts with their Internally Generated Revenue (IGR) of course is the prudent thing to do and that is what is being done. That is why the guidelines allows no state to borrow in such a manner that its total debt service on a monthly basis is more than 40 per cent of its monthly allocation from Federal Allocation.

What is taken into account is the fact that the money is essentially oil revenue. So, as a state, it is expected that your total debt service should not be more than 40 per cent of Federal allocation money. This means that the idea of sustainability of oil revenue has already been factored in. Everybody must realize that it has been taken into account that oil revenue is volatile and unstable.

What this means is that, states that already have internal generated revenue now have a buffer. The rule has been made such that every state must depend not 100 per cent on oil revenue. This is to account for the volatility and vulnerability of oil revenue. So if you have internally generated revenue it is being neglected and considered as a backup.

The second way to look at it is that every year DMO conducts a debt sustainability analysis and takes into account that oil revenue may drop to as low as $30 per barrel. It is on this basis that the DMO has an idea of the total debt owed by the country and looks at it and consider what could happen if oil revenue were to drop to as low as $30 per barrel.

This means the way we manage our debt or control it is such that the vulnerability or volatility of oil revenue is essentially taken care of. The second thing is beyond the figures - that is the value added. This is what I believe every country and states should be focusing on. What value do you generate in terms of productivity, growth and employment with the use of financial resources whether borrowed or not?

From the guidelines, I can say Nigeria's method meet the best standard in the world, but in addition, over the past few years, effort is being made so that emphasis is not placed only on the statistics. Emphasis should be on using resources effectively and efficiently so that you can use it to generate maximum growth, employment and eradicate poverty.

When you look at the discussion going on at the IMF/World Bank meeting, you can discover that all over the world, countries are battling with issues of debt sustainability and the like, but you can say that Nigeria is relatively lucky because even before the global financial crisis started, Nigeria has been on path of reform since 2004.We continued on that path of reform up till the time that the global crisis set in and that is why despite the global crisis, the country has not been badly impacted like other parts of the world.

Ogbuefi_Negro: ....the conversation has progressed with many good points id love to respond to but it would be difficult to do so on individual contact so i will summarize my response generally.

Gbawe, i want to give you a sincere feedback and im doing so openly because we all learn from one another. i dont have the authority to do so but in the spirit of exchange and interaction i think it would be a good thing.

You are a great commentator and you would cut off much of your oppositions if you can also be a great listener. This is end of my feedback.

aribisala0:

NO we are not communicating I did not say I did not know an optimal rate and you did not ask the optimal rate at which Osun should have obtained the bond. Maybe that is what you meant to say but certainly not what you said. I said I don't know to your question on what 22 billion would be worth in 7 years.

I said and have been saying all along it should NOT have obtained the bond.

That is my view. Firstly how much does Osun state owe right now after all Oyinlola's shenanigans.

I really do not see where you are going with this line of discussion .
Let us not ignore the forest to focus on firewood.

aribisala0: Lagos state borrowed 80 billion at the same interest rate Last Month. Difference Lagos generates 80 billion in 3 months. It will take Osun 3 years to generate 20 billion. While I believe the interest rate is high for Lagos it is a small debt for Lagos. What Osun has done is the equivalent of Lagos borrowing 1 trillion naira at 14.5 % . If Lagos does that will there not be an uproar

emiye:

Ok, you have still not mentioned, what you think the optimal rate should be . i would be glad if you can give a range and possibly benchmarks.

you understand the time value of money , i am sure .

22 billion of today will have a value way way less than that in 7 years from now almost certainly.
i.e a project you will spend 22 billion to achieve now, might cost you thrice as much in 7 years (66 billion) if not more.

i think the important point is that the money is rightly invested in worthwhile ventures, failure to do that is catastrophic.

If the investments in the projects will help in boosting the IGR to enviable heights and possibly to the point where they can be viable as a state, independent of FG's allocation, then why not go for the bond offer ?

emiye:

your analogy somehow fails on error of omission or commision. You have painted Osun State revenue stream as if it is only from IGR, they still rely heavily on FG's allocation. the total revenue of osun state as much as i know monthly is close to 4 billion monthly (roughly 20 % of it from IGR).

The difference between Lagos State and Osun state is that one is viable, the other is technically not, without FG allocation, that is the sad reality. As such steps must be taken to change the situation, this i think is what the state govt wants to do.

emiye:

your analogy somehow fails on error of omission or commision. You have painted Osun State revenue stream as if it is only from IGR, they still rely heavily on FG's allocation. the total revenue of osun state as much as i know monthly is close to 4 billion monthly (roughly 20 % of it from IGR).

The difference between Lagos State and Osun state is that one is viable, the other is technically not, without FG allocation, that is the sad reality. As such steps must be taken to change the situation, this i think is what the state govt wants to do.