Key questions this article answers:
With the FG’s ways and means financing currently securitised, how bad is Nigeria’s debt situation?
What is responsible for the significant rise in FG spending over the last eight years?
Guardrails are the unsung heroes of modern transportation, the unassuming barriers that line our roads to prevent us from accidents. In other parts of our lives, we also have guardrails. They are accountability partners stop us from making wrong decisions or lawmakers that prevent a government from driving the country into a fiscal ditch.
Unfortunately, Nigeria's fiscal guardrails haven’t done an excellent job of keeping the country out of disaster.
Last week, Nigerian lawmakers finally approved securitising the federal government’s ₦22.7 trillion ways and means financing, meaning the government can convert the short-term loan facility to a 40-year bond. According to the CBN Act, ways and means is an overdraft from the CBN to the federal government, which is meant to be around 5% of the previous year’s budget and paid back within the year.
However, the outstanding ways and means financing is currently $49 billion (₦22.7 trillion), a cumulation of loans over the last six years. In 2021, ways and means loans were ₦4 trillion—more than 65% of the FG’s previous year’s revenue (₦6.5 trillion). So far, the accumulated ways and means are almost 5x the total revenue earned by the government in 2021 and more than the 2023 budget.
What was supposed to be a short-term funding solution has ballooned into an enormous loan, almost half the size of Nigeria's existing debt.