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Tuesday, 31st January 2023

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Breaking News:
 * Alaafin of Oyo passes away at 83, after over 50 years on the throne

Business News  


FG MAY SPEND N4.65 TRILLION TO SERVICE CBN OVERDRAFT THIS YEAR

By Geoff Iyatse
31 January 2023   |   4:15 am
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Unless the Monetary Policy Committee (MPC) makes a U-turn on its aggressive
monetary tightening, the Federal Government may pay as much as N4.65 trillion
servicing its debt held by the Central Bank of Nigeria (CBN) this year.

CBN building

Unless the Monetary Policy Committee (MPC) makes a U-turn on its aggressive
monetary tightening, the Federal Government may pay as much as N4.65 trillion
servicing its debt held by the Central Bank of Nigeria (CBN) this year.





As at the end of last year when President Muhammadu Buhari sought the Senate’s
approval to securitise the CBN facility, the ways and means (W&M) stood at N22.7
trillion.



At the signing of the 2023 budget, the President said the government could incur
an additional N1.8 trillion on interest payment if the plan to convert to a bond
fails.



The government, according to Buhari, had agreed to pay the CBN MPR plus 300
basis points (bps) as interest on the facility.

Alternatively, the government convert it to a long-term bond with an arrangement
said to have been reached for a nine-percent offer. But the securitisation plan
can only happen if the Senate approves the plan.

The Senate seems stuck to its gun – from demanding an explanation of the details
of the facility to indifference.

The Senate President, Ahmad Lawan, had said that the Senate would approve the
President’s request as long as the required details of the spending were
provided by the Finance Minister, Zainab Ahmed, and Governor of the Central
Bank, Godwin Emefiele.

But at the last plenary, the upper chamber failed to consider the request before
proceeding for the election break. The report said the Leader of the Senate,
Ibrahim Gobir, who chairs the special committee set up to get details of the
document from the relevant offices said nothing about the issue during the
plenary.

“The Ways and Means balance as at 19th December 2022 is N22.7 trillion.

“I have approved the securitisation of the ways and means balances along the
following terms: amount, N23.7 trillion; tenure, 40 years; moratorium on
principal repayment, three years; pricing interest rate nine per cent. Your
concurrence and approval are sought to allow for the implementation of the
same,” Buhari said in his letter to the Senate.



In December when the President sought approval, the MPR was 16.5 per cent. Based
on the prevailing MPR, the President estimated the differential between the cost
of serving the debt as held by the apex bank and bond issuance at N1.8 trillion.

With the recent upward review of the MPR to 17.5 per cent, the government will
be paying 20.5 per cent (MPR plus three per cent) on the existing facility
unless it is restructured. The current interest amounts to N4.65 trillion, a
figure that could go up if the MPR is raised beyond its current benchmark.

The amount the government could pay to service the debt held by the apex bank is
remarkably higher than N1.2 trillion allocated for the purpose in the 2023
fiscal framework document. It could clean off 71 per cent of N6.55 trillion
provisioned for debt servicing in the 2023 budget.

Whereas the plan to restructure the facility to a 40-year bond is considered a
strange contemplation in the management WM, some experts suggested that
securitisation is the most feasible option in taking it off the balance sheet of
the CBN, and transferring it to the Debt Management Office (DMO) for proper
management.

The restructuring would increase the documented sovereign debt to N66.7
trillion. The country’s public debt stood at N44 trillion as at the end of
September 2022. Zainab had, at a public event, admitted that some of the
sub-national debts had not been aggregated into the national basket, but that
efforts were being made to do so.







IN THIS ARTICLE

 * CBN overdraft
 * Monetary Policy Committee
 * Muhammadu Buhari‎



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