The proposed securitisation of the N22.7 trillion loans from the Central Bank of Nigeria (CBN) to the Federal Government, if approved, is expected to have several implications for the economy.
Securitisation is the conversion of an asset, especially a loan, into marketable securities, typically for the purpose of raising cash by selling them to other investors.
The Federal Government plans to securitise the CBN’s overdraft, also known as ways and means advances, and is seeking lawmakers’ approval to convert the debt to 40-year bonds at 9 percent interest, with a three-year moratorium.
Zainab Ahmed, minister of finance, budget and national planning, had explained that the CBN’s overdraft would be issued in the form of bonds and treasury bills to be offered for subscription by investors.
“It depends on if the CBN is able to sell it to the public. N22.7 trillion is huge money. It will soak up liquidity. Once it enters the market, it will dry up investible funds in the market,” Johnson Chukwu, managing director/CEO of Cowry Asset Management Limited, said by phone, adding that banks cannot afford to buy it.
Taiwo Oyedele, head of tax and corporate advisory services at PwC, said the securitisation of the ways and means financing would have mixed implications for the economy.
He said that on one hand, it would increase the reported public debt-to-GDP ratio and reduce the room for further deficit financing by the government,
“There is a likely risk of private sector crowding out, especially in view of the tax exemption on government bonds which is not available on corporate securities,” he said.
On the positive side, Oyedele said it would help to bring the government into compliance with the Fiscal Responsibility Act regarding ways and means limits; and reduce debt service cost, given that the securitisation yield is expected to be lower than the interest rate currently being paid to the CBN.
“Also, inflation rate is expected to decline, given the liquidity mop-up effect of the securitisation,” he said.
Uche Uwaleke, professor of Capital Market at the Nasarawa State University Keffi, described the proposed securitisation terms such as tenure of 40 years and 9 percent interest as unrealistic.
According to him, the rate is too low to attract investors and the amount involved is so large for the domestic market. “Increasing the interest rate will impose a huge burden on the government,” he said.
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He said the way forward is to explore ways of getting the CBN to write off a substantial part of it, given that much of the ways and means were advanced on the back of the COVID-19 pandemic.
“This approach will affect the balance sheet of the CBN negatively but the burden on the economy will be lighter than going through the route of securitisation,” Uwaleke added.
The country’s public debt stock increased to N44.06 trillion in the third quarter of last year from N39.56 trillion at the end of 2021, according to the Debt Management Office (DMO).
“Nigeria’s debt was already N44 trillion as at September; once the National Assembly approves the securitisation of the CBN’s ways and means, the figure will be added to the public debt. We are already at about N77 trillion, if the new borrowing is added, give or take N5 trillion, depending on market conditions,” Patience Oniha, director-general of DMO, said recently.
Last week, the Senate gave a three-day ultimatum to the finance minister to submit details of President Muhammadu Buhari’s N23.7 trillion Ways and Means request for scrutiny.
Buhari had in late December written a letter to the National Assembly, seeking approval for restructuring of N22.7 trillion ways and means advances. But the lawmakers failed to approve it when the 2023 budget was passed, insisting on conducting appropriate checks.
