Chat 212 - News Summary...
- Debt default by the United States would have grave implications for Nigeria as borrowing cost would rise significantly in the international market.
- The Minister for the Economy said the debt between the US Congress and Obama administration is creating a lot of uncertainty in the global financial market fearing it may affect the performance of Nigeria’s bond if not resolved urgently.
Chat 212 - Newsmail Report...
The lingering budget row and the possibility of a debt default by the United States would have grave implications for Nigeria as borrowing cost would rise significantly in the international market.
Finance Minister and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala said yesterday in Washington DC that the face-off between the US Congress and the Obama administration had created uncertainties that could raise interest rates on two of the nation’s sovereign debt instruments currently traded in major financial centres across the globe.
Addressing a world press conference shortly after the meeting of the Commonwealth Finance Ministers with the leadership of the World Bank and International Monetary Fund, IMF, in Washington DC, Okonjo- Iweala noted that the current US imbroglio would certainly not be favourable to yield and interests accruable on Nigeria’s bonds.
This is because the continued stalemate and uncertainty over the debt issues would make it more expensive for Nigeria and other sovereigns and their private entities to borrow from the international financial market.
Nigeria had earlier this year issued a $1bn Eurobond that was heavily subscribed by international investors. That was coming after the government sold its first $500m bond in the international financial market about two year ago.
According to the minister, the current debt row between the US Congress and President Obama administration is creating a lot of uncertainty in the global financial market fearing it may affect the performance of Nigeria’s bond if not resolved urgently.
“The present situation in the USA creates a lot of uncertainty for developing countries especially those that have bonds traded in the US market. We hope it is resolved urgently so that it will not hurt the yields and interests on these instruments,” she said.
Meanwhile, Commonwealth countries are to take a more proactive stance in dealing with tax avoidance by multinational companies and local entities within the group.
Okonjo-Iweala stated that the issue is now gaining traction in discussions within the group as against the long term focus on corruption in developing countries.
The minister said that an initiative has been set up under the G8 headed by the Prime Minister of the United Kingdom trying to look at financial centres and the use of tax evasion by companies.
The minister also said African Finance Ministers have set up a high level panel chaired by former South African President Thabo Mbeki to look at the issues of tax evasion and illicit financial flows and their impact on the economies of member states.
“This is work in progress and we are trying to look at what we can do, the extent of this problem and exactly what steps we can take to solve the problem,” she noted in response to questions from international media.
She noted that some countries are already looking inwards at their tax regimes and what is wrong.
The minister said Nigeria and Tanzania are already looking at their tax system with a view to plugging loopholes and strengthening compliance levels across the board.
She pointed out that a recent audit by the firm McKenzie of South Africa was to evaluate issues of delayed tax remittances by local and international entities operating in Nigeria.
On the issue of global trading agreement currently in favour of developed nations, she said the preference for all developing nations is for everybody to go back for a strong multilateral round at the WTO.
She, however, regretted that African countries have failed to take full advantage of opportunities offered by the African Growth and Opportunity Act, AGOA, which allows free entry of certain categories of African products into the US market.
According to her, developing nations would benefit more by negotiating as a group pointing out that West African nations were preparing the ground for this.
“We have realised that it is more beneficial to negotiate as a bloc and ECOWAS for instance is trying to get its own trade and tariff regime in shape. And that was why we just had an ECOWAS finance meeting last week to conclude on our internal trade issues so that we can negotiate as a bloc,” she said.
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