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By Chinwendu Obienyi
Foremost business information provider, Agusto&Co, has warned that the planned restructuring of the Central Bank of Nigeria’s Ways and Means debt stock (estimated at N22.7 trillion) in 2023 could likely tighten Nigeria’s credit conditions and up its debt servicing costs.
The agency’s projection was contained in its recently released report titled ‘2023 Outlook: Nigeria, a Nation on the Precipice’.
The report revealed that the country’s current fiscal picture looks grim and added that without additional (and increasingly expensive) borrowing, crucial spending on infrastructure, salaries, debt payment and defence will become nearly impossible.
Whilst stating that the 2023 budget (N21.8 trillion) projects a fiscal deficit of N11.3 trillion (5 per cent of GDP) Agusto&Co noted that this is likely to overshoot on account of the historical precedent of poor revenue performance and petrol subsidy spending.
“The likely restructuring of the Ways and Means stock (estimated at N22.7 trillion) in 2023 will likely span several years to avert a liquidity crunch but is likely to tighten credit conditions if we assume largely domestic uptake by banks.
This would also push up debt servicing costs significantly as Ways and Means Advances are projected to account for 30 per cent (the largest chunk) of Nigeria’s N77 trillion debt stock by May 2023”, the agency said.
Speaking on the current cash crunch, Agusto&Co, said the implementation of the redesign cash policy has ostensibly been accompanied by teething problems which are proving disruptive to economic and social activity.
“At this juncture, it is also crucial to note that at the launch of the redesign project, a revision to the Central Bank of Nigeria’s (CBN) cashless policy was also announced – to reduce the quantity of cash being printed– aimed at driving the increased use of digital banking channels. This, it seems, is at the crux of the current challenge (scarcity of new naira notes) as most Nigerians expected a simple exchange of old notes for the new ones”, it said.
The agency noted that so far, the exercise has reeled in 75 per cent (N1.9 trillion) of the N2.7 trillion held outside the banking system and added that while this sounds like success, it in no way absolves the CBN of its responsibility to ensure adequate and transparent distribution of the new notes or manage public expectations, both of which have combined to trigger widespread panic (and hoarding) which now threatens the social economy.
“The next president’s first order of business will be to confront Nigeria’s aforementioned economic challenges, which are the culmination of multi-decade structural and policy weaknesses…”
In the last few years, structurally high inflation has been exacerbated by elevated global commodity prices, currency weakness and the impact of the rising spate of insecurity on food production. This has left the average Nigerian significantly poorer as GDP per capita, at $2,418 in 2022, is still lower than 2019 levels of $2,505
This is currently contributing profoundly to a wave of emigration by Nigerians, in search of greener pastures, which now threatens several critical sectors of the economy, particularly healthcare”, the report said.
