Nigerian govt to turn N20 trillion CBN debt to bonds repayable over 40 years

The Nigerian government is to restructure its record N20 trillion debt to the central bank to bonds, a step seen as availing the revenue-starved government the luxury of longer time to pay back, after President Muhammadu Buhari consented to the proposal.

The credit, obtained through Ways and Means Advances – a facility granted by central banks to help government bridge temporary funding gaps subject to regulatory limits, has run up for years, standing at N789.6 billion when the current administration started in 2015. The Buhari government borrowed some 7000 per cent more in just over seven years.

“The direct consequence of Central Banks financing of deficits are distortions or surges in monetary base leading to adverse effect on domestic prices and exchange rates,” the Central Bank of Nigeria (CBN) says on its website.

One of the implications is macroeconomic instability resulting from excess liquidity that has been injected into the economy, according to the CBN, which upped banks’ cash reserve ratio to 32.5 per cent and often punishes lenders that do not mop up liquidity to that level.

“It is a one-time restructuring repayable over 40 years with a moratorium,” Patience Oniha, the debt office chief, told Bloomberg of the conversion plan via SMS.

The borrowing, added to the Nigerian government’s debt figure estimated at N42.8 trillion at mid-year, sums the government’s entire debt up to N62.8 trillion or $143.6 billion.

Ms Oniha said the credit will be decided after the government gets green-light from the legislature as well as the cabinet.

Last Thursday, Nigeria’s sovereign dollar bonds, with 2047 as their maturity, cringed to 56.8 cents at midday in London from 58.4 cents one day prior in investors’ reaction to news of government’s debt restructuring plan.

The N20 trillion was the balance as of the end of the first quarter, and the value could be way higher when the part contributed by the CBN to the N5.3 trillion the government borrowed to part-finance 2022’s budget shortfall as of August is factored in.

Africa’s biggest economy’s debt as a percentage of its gross domestic product might leap to 35 per cent from 23 per cent once the credit it owes to the apex bank becomes bond.

The World Bank expects how much the country uses to service debt to jump to 102.3 per cent of its revenue come December.

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