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By Chinwendu Obienyi
The thinking in some quarters that Nigeria is unlikely to rely on domestic borrowings this year has been punctured as economic analysts estimate that the Federal Government will increase its reliance on domestic debt issuances and the Central Bank of Nigeria (CBN)’s Ways and Means (W&M) to address its fiscal deficit.
This is even as the apex bank’s lending to the government through its W&M have reportedly surged by 2,700 per cent in 7 years. This came on the back of criticism from the former presidential candidate of the Labour Party (LP), Peter Obi levelled against the approved N7.3 trillion W&M debt balance from both chambers of the National Assembly.
President Bola Tinubu, had on December 30, 2023, addressed both chambers of the National Assembly, urging the securitization of the outstanding N7.3 trillion W&M – which is the short-term financing tool by the CBN to cover budget shortfalls. The President argued that this move would lead to benefits such as a reduction in debt service costs.
However, Obi via X (formerly called Twitter), countered this by stating that continuous securitization goes against the CBN Act’s limits on Federal Government borrowing. Drawing attention to the previous administration’s similar borrowing of N22.7 trillion from the CBN, Obi stated that the violation of the CBN Act has resulted in a 2,700 per cent surge in lending to the government in the last 7 years.
He also emphasized the lack of transparency and accountability in the approval of the approved securitization, expressing concern about future economic repercussions. This has led to concerns that despite the World Bank’s advice to the government to phase out the W&M tool, the massive borrowing could pose risks to Nigeria’s economic future.
In its report titled; Nigeria in 2024: Unravelling the Tapestry: Crisis or Confidence?, analysts at Cordros Research, noted that the FG’s reliance on CBN’s debt monetisation could remain intact, although lower than the prior year, the domestic market is unlikely to absorb the government’s borrowing needs.
“Given that the CBN’s Ways & Means advances to the FG settled at N3.42 trillion in the first five months of 2023 as against N6.07 trillion and the approved increase of Ways & Means to 15.0 per cent of the previous year’s revenue (previously: 5.0 per cent), we anticipate that N2.00 trillion will be passed through the CBN’s Ways & Means advances, leaving N6.60 trillion to be borrowed in the domestic capital market in 2024 as compared to N6.33 trillion or 81 per cent domestic borrowing plan in the first 11 months of 2023.
The preceding implies that while domestic borrowings will remain elevated in the full year of 2024, they may be below the level of bond supplies in 2023”, they said.
Meanwhile, the Director General, Centre for Promotion of Private Enterprise, Dr Muda Yusuf said the CBN was taking steps to ensure the W&M was declining.
He said: “The Ways and Means grew astronomically from N2.4 trillion in May 2015 to N30 trillion in May 2023. And this mode of financing is highly inflationary.
“The good news is that as at November 2023, Ways and Means financing had dropped to N5.2 trillion. This is something to be commended. It is hoped that the incumbent administration will live up to its word of keeping within the limits of the law with respect to ways and means financing.
“The benefits of such compliance is the positive impact on macroeconomic outcomes.
The report also stated that based on the details of the budget proposal, the government plans to finance its fiscal deficit of N9.05 trillion through a combination of domestic, foreign borrowing, multilateral/bilateral loan drawdowns and privatization proceeds adding that amid its forecast of high global interest rates, it expects the government to focus on reforms to increase revenue generation from taxation rather than tapping into the Eurobond market this year.
“On foreign borrowings, we expect global interest rates to remain prohibitively high in 2024FY relative to historical averages, as global central banks have penciled down fewer interest rate cuts. Thus, the interest rate mantra for 2024 FY remains “higher-for-longer”. Aside from interest rates remaining high in 2024 FY, the Finance Minister at the G24 meeting of the 2023 annual meetings of the World Bank and the IMF stated that rather than focusing on borrowings, the government would implement new reforms that would lead to increased revenue generation from taxation with focus on tax collections.
Thus, we do not expect the government to tap the Eurobond market in 2024. Elsewhere, we assume the government will successfully draw down loans from multilateral institutions (World Bank and the IMF) as the country is now implementing reforms. Indeed, the FGN expects to draw down $1.50 billion from the World Bank budget support facility. Overall, the scenario suggests that the FGN will increase its domestic debt issuances while maintaining its use of CBN’s overdraft facilities, albeit lower than 2023 FY levels”, the report said.
