Nigeria spends N490bn on T-Bills interest payment in nine months

Nigeria’s government spent N490.9 billion as repayment on matured Treasury Bills in the first nine months of 2024, BusinessDay findings show.

Data from the Central Bank of Nigeria (CBN) primary market report showed that the government paid more than double the N234.7 billion it paid in the same period the previous year as interest on treasury bills in 2024.

Treasury bills are short-term debt instruments issued by the Federal Government through the CBN to provide short-term funding for the government.

The increase in interest on treasury bills is a result of the 850 basis points hike in interest rate by the Monetary Policy Committee of the CBN this year, led by Yemi Cardoso, the apex bank governor.

Nigeria’s benchmark interest rate has been jacked up to 27.25 percent from 18.75 percent at the start of the year to combat rising inflation.

The Federal Government has paid N5.2 trillion (interest and capital) in repayment of treasury bills this year, from N3.8 trillion it paid in the same period last year.

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One-year treasury bills peaked at 28.36 percent in July, the highest on record before it started to decline to 23.36 percent in September.

At the last auction, the stop rate on the one-year Treasury bill was 20 percent, up by over 1 percent from 18.5 percent at the last auction, while the rates on the 91-day and 182-day treasury bills rose by 0.3 percent and 0.5 percent respectively.

Analysts have said that increased spending on treasury bills due to higher interest rates contributes to a larger government debt burden.

As the Nigerian government continues to struggle with its ‘scarce’ resources, experts have raised concerns about the increasing public debt portfolio which stood at over N120 trillion as of March 2024, stating that the amount needed to service such debt will consume a huge part of the government’s lean resources.

According to the Debt Management Office, the total debt owed by both the federal and state governments rose to over N121 trillion as of March 2024. This is a 19.8 percent and N24 trillion increase within three months from the N97 trillion debt profile as of December 2023.

The total debt was made up of external debt at $42 billion (N56 trillion) and domestic debt at N65 trillion ($49 billion).

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In a recent statement, the World Bank expressed deep concern over the escalating debt service costs that are burdening developing countries worldwide.

Indermit Gill, World Bank’s chief economist and senior vice president, emphasised the gravity of the situation, highlighting the potential for a widespread financial crisis if immediate and coordinated actions are not taken.

He stated that the combination of record-level debt and soaring interest rates has set many developing nations on a precarious path, one that could lead to economic distress and tough decisions regarding the allocation of resources.

Data from the latest quarterly statistical bulletin of the Central Bank of Nigeria (CBN) shows that the debt service-to-revenue in Africa’s most populous nation stood at 74.3 percent (N1.31 trillion) of total retained revenue of N1.76 trillion in the Q1 of 2024.

Olaolu Boboye, lead economist CardinalStone Research said that the increase in interest on these government bills can be negative for the fiscal position of the government and can create future worry for the country.

“Debt servicing in Nigeria over the past five years has been hovering around a range close to 100 percent, this shows how precarious things are,” Boboye said.

He said that excessive borrowing by the government can crowd out the private sector from the debt market.