A couple of weeks ago, Nigeria’s finance minister, Zainab Ahmed, announced the conversion of its ₦20 trillion ways and means loan facility from the CBN to a 40-year bond.
This loan facility from the Central Bank of Nigeria (CBN) to the Federal Government (FG) has gained media attention recently due to its rapid expansion and how the CBN has been flagrantly breaking its own laws.
Key takeaways:
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The Federal Government plans to securitise its ₦20 trillion debt from the CBN into a 40year bond at a 9% interest rate.
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This will worsen our debt metrics and add about ₦1.8 trillion yearly in debt service costs. For context, our total debt service cost in 2022 amounted to ₦3.98 trillion.
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Given limited revenues, the Minister of Finance—Mrs Zainab Ahmed—should have prepared more conservative budgets to better manage the country’s budget deficit and loan growth.
Ways and means represent a loan by the CBN to the Federal Government to help bridge budget shortfalls. However, according to CBN's law and guidelines of 2007, this loan must not exceed 5% of FG's previous year’s collected revenue. But as of August 2022, CBN loans to the FG hit a record ₦22 trillion (12.5% of GDP), up from ₦17.4 trillion (10.1% of GDP) at the end of 2021.
So, between December 2021 and August 2022, the CBN lent the FG ₦4.6 trillion—75% of 2021 revenues—way above the 5% mandate.
The conversion (a.k.a securitisation) of this loan facility to a bond means it will become a debt instrument to be sold to investors at an interest rate of 9% per annum. This decision has two major consequences for the Nigerian economy.
Firstly, since the ways and means would
