Nigeria is unlikely to hit the brakes on its recourse to the central bank for loans to fund the federal budget in 2023, with the government set to battle another year of a higher-than-planned fiscal deficit.
Africa’s most populous nation plans to spend N21.8 trillion against revenue of N10.5 trillion, according to the budget signed on Jan. 3 by President Muhammadu Buhari, who will leave office in May.
That leaves a deficit of N11.3 trillion, which will be plugged largely by borrowing. Zainab Ahmed, the finance minister, said on Wednesday that N7.04 trillion will be sourced from the domestic market, and some N1.76 trillion will be borrowed from foreign sources while an additional N1.7 trillion will come from existing bilateral and multilateral facilities.
The borrowing plan would make it impossible for the government to avoid loans from the Central Bank of Nigeria (CBN) this year, according to some analysts.
The analysts doubt the domestic market will be able to absorb the N7 trillion, which will be a record and double the N3.2 trillion raised by the Debt Management Office from the same source last year.
Secondly, the government’s revenue projection is viewed as overly optimistic and may fail to meet up for the eight-straight year. That would leave a higher deficit and open the door to even more borrowing. When faced with the same problem (where the deficit is larger than planned), the government has resorted to the CBN.
“You can’t logically see where the cash will come from because the bond and T-bill market can’t absorb N7 trillion in a year, so there would be a need for some more CBN loans this year,” a senior investment banker told BusinessDay.
The CBN loans to the federal government, otherwise known as Ways and Means Advances, have jumped by more than 20 folds since 2015, going from under a trillion naira to N22 trillion.
The sheer amount of the loans is a violation of the laws guiding the CBN which states that the federal government can only borrow 5 percent of its earnings from the previous year.
Between 2021 and 2022, the CBN’s loans to the government went from N17.5 trillion to N22 trillion which means some N4.5 trillion was added in 2022. That’s almost at par with the total revenues earned by the government for the whole year when the figure should not exceed five percent of public revenue.
The President is seeking approval from lawmakers to securitise the N22 trillion worth of CBN loans and convert them into 40-year bonds and the process is stalling.
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The move is supposed to give the government, which spent 80 percent of its revenues on debt service in the first 11 months of 2022, some breathing room with interest payments.
Nigeria will pay an extra N1.8 trillion ($4 billion) to service its debt if the National Assembly blocks the plan to restructure the loans, according to President Buhari.
The upper chamber of parliament suspended a session to consider Buhari’s request, with some lawmakers saying the borrowing is unconstitutional.
“The question we need to start asking is who will take up the bonds if the CBN loans are eventually securitised and restructured? I don’t think the CBN would not want to carry that on its balance sheet, especially if they are not priced at market rates,” a senior banker who did not want to be named said.