May 30, 2023/CSL Research
The House of Representatives and the Senate approved an amendment to the
Central Bank of Nigeria’s (CBN) Act, raising the ceiling of Ways and Means Advances (WMAs) from the apex bank to 15% of Federal Government Revenue from 5% previously.
The National assembly gave the approval at an emergency sitting called to consider and approve some economic bills. The National Assembly made the move amidst criticisms that the Federal Government had obtained WMAs beyond the 5% threshold of the CBN.
According to Section 38 of the CBN Act 2007, the apex bank may grant temporary advances to the Federal Government regarding temporary deficiency of budget revenue at such rate of interest as the bank may determine, limited to 5% of FG previous year’s revenue.The government and the apex bank have been in breach of Section 38(2), (3a) of the Act, while the current securitisation breaches Section 38(3b) of the law.
According to the Debt Management Office, Nigeria’s public debt stock stood at N46.25 trillion (US$103.1 billion) as of December 31, 2022; when the N22.7 trillion to be securitized is included, total public debt climbs to N77.8 trillion. Nigeria’s external debt has continued to climb, despite shrinking revenues. External loans have nearly quadrupled in the last five years, increasing from US$25.7 billion at the end of 2018 to US$46 billion at the end of 2022, with debt servicing consuming about 96.3% of Nigeria’s earnings according to the World Bank. Given present economic realities, which we do not expect to improve in the short term, debt levels are expected to continue to soar.
Nigeria’s debt-to-service ratio has been on the rise in recent years amidst Nigeria’s dwindling revenues. Nigeria’s debt service to revenue ratio was reported to be 80.7% in 2022 according to the Minister of Finance. The World bank however estimated that Nigeria’s debt-to-revenue ratio was 96%, higher than what was reported by the Ministry of Finance. Nigeria’s total debt stock rising to N77.8trn will take the country’s Debt to GDP ratio to 38.4%. This is close to the 40% benchmark contained in the medium-term debt management strategy paper and will likely reach that level in 2023 given that actual borrowing may likely exceed planned.
We believe the new administration under the leadership of President Bola Ahmed Tinubu has its work defined. It is imperative that the new administration seeks efficient ways to generate revenue to meet both short and medium-term government expenditure. Increased revenue alongside efficient policies that would lead to a gradual reduction of the public debt is one step to set the nation back on the track of recovery.
