As Nigeria continues to grapple with growing public debt, the federal government, overwhelmed by debt-servicing, has been pushing to restructure its debt.
Although last week, the Minister of Finance Budget and National Planning, Dr Zainab Ahmed, denied a report that Nigeria has asked both the International Monetary Fund (IMF) and the World Bank to restructure its debt, the recent government’s move shows that the report is not far from the truth.
The minister has announced that President Muhammadu Buhari has approved plans to convert more than N20 trillion Ways and Means loan from the Central Bank of Nigeria’s (CBN) to 40-year bonds.
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“The total Ways and Means today is 20 trillion and we have the approval to securitize. The securitization will be over in a 40-year period with an interest rate of 9%. But over the years, we have been paying the interest component at the current rate that is charged on the Ways and Means,” she said.
The approval underscores how tight public finance has become under Buhari, whose administration has taken Nigeria’s public debt portfolio to N42.8 trillion as of August this year. The public debt portfolio does not include the N20 trillion from the CBN’s Ways and Means, which climbed to N22 trillion in August, representing a 36% increase year-on-year
The CBN has in the last five years, illegally provided the federal government with the loan, which the Buhari’s administration obviously can’t repay now due to Nigeria’s current economic turmoil. Thus, the Buhari’s administration has chosen to bequeath it to future governments.
“It is a one-time restructuring repayable over 40 years with a moratorium. The timing of the conversion will be announced after the government seeks approval from the cabinet and lawmakers later this year,” Patience Oniha, head of the country’s debt management office, told Bloomberg in a text message.
Ahmed, who disclosed the approval at the Ministerial Presentation of the 2023 budget at the Ministry of Finance Headquarters in Abuja, also said that total public debt as a percentage of GDP recorded a decline of 2.64% in 2021 from 2.7% the previous year – and the decline is expected to remain stable throughout the year.
“The total public debt as a percentage of GDP stood at 23.06% as of June 30, 2022, within the 55% threshold recommended by the International Monetary Fund (IMF)/World Bank (WB) as well as Nigeria’s self-imposed limit of 40% set in the MTDS 2020-2023, even after including the outstanding balance on CBN Ways & Means Advances.
“The Target Ratio under the MTDS 2020-2023 is 70:30 and that the Debt Management Office was expecting to achieve the target by end of 2023,” Ahmed said.
She further said that the exposure to refinancing risk remained stable as a result of the strategy of issuance of long-dated securities in the domestic and international markets in addition to accessing long-term funds from multilateral and bilateral lenders.
But she expects the country’s total debt stock to increase to about 35% of gross domestic product from 23% after the central bank loans are converted.
Nigeria has resorted to borrowing to offset its public finance since 2015, following a decline in the country’s oil revenue. With two recessions and rising inflation, the economy has been on steady decline – forcing the government to turn the central bank into a cash-cow through the Ways and Means loans.
Experts believe that it spells doom for the future. Compared to the Asset Management Corporation of Nigeria (AMCON)’s N5 trillion debt that is believed to have contributed to Nigeria’s current double-digit inflation, a N20 trillion debt is expected to unleash worse economic consequences.
Against this backdrop, experts said that debt servicing is expected to rise to N4 trillion, representing 20% of the budget for 2023, while debt servicing to government revenue would likely rise to 180%.
“With the N20tn to be offloaded at an unrealistic 9% coupon, Buhari’s govt. is setting a big trap for the next govt.,” Seun Onigbinde, executive director, BudgIT said. “That’s putting a burden of at least N1.8tn annual debt servicing on governments for the next 40 years. Crisis.”