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Addressing Nigeria's revenue realities
Nigeria’s Finance Minister, Zainab Ahmed says the COVID-19 has shown the urgent need for the government to diversify its revenue sources and will be doing so under its Strategic Revenue Growth Initiative. Dipo Ajayi, Head of Fixed Income and Forex at Chapel Hill Denham joins CNBC Africa for more.
Mon, 27 Jul 2020 11:44:05 GMT
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AI Generated Summary
- Nigeria aims to diversify revenue sources and enhance revenue generation capacity to address the impact of the COVID-19 pandemic
- Low revenue-to-GDP ratio and high debt servicing costs pose challenges for investors and financial stability
- Market volatility and liquidity constraints require regulatory support and strategic interventions to stimulate investor confidence and activity
Nigeria's Finance Minister, Zainab Ahmed, has emphasized the urgent need for the government to diversify its revenue sources in light of the challenges posed by the COVID-19 pandemic. The government has launched a Strategic Revenue Growth Initiative aimed at addressing the revenue shortfall and boosting the country's revenue generation capacity. Dipo Ajayi, Head of Fixed Income and Forex at Chapel Hill Denham, shared insights on the revenue situation in Nigeria and the role of the capital markets in driving growth. Ajayi highlighted the importance of increasing revenue to bridge the budget deficit and create a more sustainable financial outlook for the country. He commended the government's target of raising 18 trillion naira over the next three years, noting that improving revenue generation is crucial to attracting investors and reducing the country's debt burden.
One of the key concerns raised by Ajayi is Nigeria's low revenue-to-GDP ratio, which stands at 60.2%, significantly lower than global standards. The government's cost of debt servicing remains high, posing challenges for investors assessing the country's creditworthiness. Ajayi emphasized the need for Nigeria to enhance its revenue generation capacity to instill confidence in the market and create a more stable investment environment.
Looking ahead, Ajayi discussed the performance of the market in the context of recent developments. He noted that the market had experienced volatility due to fluctuating yields on government securities and reduced issuance by the Central Bank. Liquidity constraints in the market have led to subdued investor interest, impacting returns and creating uncertainty. Ajayi expressed optimism about the expected inflow of funds into the market, which could drive activity and stimulate trading.
In terms of the Naira exchange rate, Ajayi highlighted the Central Bank's cautious approach in managing liquidity. He noted that the CBN had refrained from intervening in the foreign exchange market due to current restrictions on international travel and reduced foreign exchange demand. The lack of fresh issuance by the CBN has limited liquidity in the market, with foreign investors facing challenges in repatriating funds. Ajayi stressed the importance of regulatory support in stabilizing the market and fostering investor confidence.
Overall, the focus on enhancing revenue generation and diversifying income streams is critical for Nigeria's economic sustainability. The government's Strategic Revenue Growth Initiative represents a step towards addressing revenue shortfalls and promoting long-term financial stability. By leveraging the capital markets and implementing strategic fiscal policies, Nigeria aims to attract investment, reduce debt dependency, and create a conducive environment for economic growth.
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