FG Plans to Convert CBN Ways and Means Loans to Bonds Over 40 Years

Government’s contingent liabilities as a share of GDP fell from 2.75% in 2020 to 2.64% in 2021

Dr. Zainab Ahmed, the Minister of Finance, Budget, and National Planning, claimed that she had been given permission to securitize the Ways and Means portfolio of the Central Bank of Nigeria (CBN), which is worth N20 trillion.

Nigeria’s government plans to convert at least 20 trillion naira ($45.4 billion) of loans taken from the central bank to 40-year bonds, the first time it’s resorted to such a move as public finances come under pressure. These loans which some have called printing of money by the apex bank, have not been added to the nation’s debt.

President Muhammadu Buhari approved the plan to convert the debt, which has mostly been taken one since he was elected in 2015 to plug spending shortfalls after revenue collapsed on lower oil prices and production. It’s the most the government of Africa’s biggest economy has borrowed from the bank.

“It is a one-time restructuring repayable over 40 years with a moratorium,” Patience Oniha, head of the country’s debt management office, said in a text message to Bloomberg. The timing of the conversion will be announced after the government seeks approval from the cabinet and lawmakers later this year, Oniha said.

The International Monetary Fund and the World Bank have said the government practice of using central-bank financing undermines confidence and hampers investment. The IMF in February urged the government to reduce its dependence on the funding.

The central bank loans, which totaled 20 trillion naira as of March, aren’t included in the country’s debt stock of 42.8 trillion naira as of June. Oniha said in February 2021 that the government would convert what was then $25 billion of central bank loans to 30-year bonds, though that plan was never approved.

The government owed the central bank 20 trillion naira as of March, according to a report by the budget office published in August. That amount may increase, after Finance Minister Zainab Ahmed said Wednesday that the government borrowed 5.33 trillion naira from January to August, including loans from the central bank, to partly fund this year’s budget deficit. She didn’t disclose what portion came from the bank.

Ahmed expects the country’s total debt stock to increase to about 35% of gross domestic product from 23% after the central bank loans are converted, she said at a briefing in the capital, Abuja.

Debt-service payments consumed 83% of the West African country’s revenue in the year through August. Ahmed said the country plans to reduce the burden to 50% of revenue in the medium-term and eventually to 30% in the long-term by boosting government income

Africa’s largest crude producer barely earned enough revenues to cover debt service payments in 2021, according to the budget office while in the first four months to April, government income of 1.63 trillion naira was less than the 1.94 trillion naira needed to cover debt-service payments, Finance Minister Zainab Ahmed said, according to a presentation on the budget office’s website.

While the debt portfolio remains vulnerable to revenue and exports shocks, “the challenges are being addressed by the government through its on-going strategic revenue growth initiatives,” the report said.

October 21, 2022