The Federal Government may have to pay as much as N4.65 trillion this year to service its debt held by the Central Bank of Nigeria (CBN) if the Monetary Policy Committee (MPC) does not reverse course on its aggressive monetary tightening.
The ways and means (W&M) were N22.7 trillion at the end of last year when President Muhammadu Buhari asked the Senate for permission to securitize the CBN facility.
The President stated at the signing of the 2023 budget that if the attempt to convert to a bond is unsuccessful, the government could be forced to pay an additional N1.8 trillion in interest.
According to Buhari, the government has promised to pay the facility’s interest at a rate equal to the CBN MPR + 300 basis points (bps).
As an alternative, the government might convert it into a long-term bond with a deal supposedly struck for a nine-percent offer. However, the securitization scheme can only be implemented if it receives Senate approval.
The Senate appears to be sticking to its guns, ranging from seeking a description of the facility’s specifics to showing little interest.
The Finance Minister, Zainab Ahmed, and the Governor of the Central Bank, Godwin Emefiele, were required to present the necessary details of the spending before the Senate would endorse the President’s proposal, according to Senate President Ahmad Lawan.
However, the upper chamber did not take the request into consideration at the most recent plenary before leaving for the election break.
According to the report, Ibrahim Gobir, the leader of the Senate, who also serves as chair of the special committee tasked with obtaining information on the document from the appropriate offices, remained silent 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.
When the President requested clearance in December, the MPR was 16.5%. The President calculated the difference between the cost of servicing the debt as held by the apex bank and bond issuance at N1.8 trillion based on the current MPR.
If the current facility is not reformed, the government will be paying a total of 20.5 percent (MPR plus three percent) as a result of the recent increase in the MPR to 17.5 percent. The present interest rate is N4.65 trillion, however if the MPR is increased over its existing benchmark, the sum could increase.
The N1.2 trillion set aside in the 2023 budget framework document for this purpose is considerably lower than the amount the government may pay to settle the debt owned by the apex bank. It might eliminate 71% of the N6.55 trillion budgeted for debt servicing in 2023.
While some analysts believe that securitization is the most practical way to remove the facility off the CBN’s balance sheet and give it to the Debt Administration Office (DMO) for effective management, the management WM views the plan to restructure the facility to a 40-year bond as an odd concept.
The reported level of sovereign debt would rise to N66.7 trillion as a result of the restructuring.
The nation’s public debt, as of the end of September 2022, was N44 trillion. In a public setting, Zainab had acknowledged that some subnational loans had not yet been added to the national debt, but that attempts were being made to do so.
