Central bank lending to Nigeria to rise by $52b

Bloomberg

Nigeria is seeking lawmakers’ approval to take on an additional loan from the central bank that would increase the government’s obligation to $52 billion, putting further pressure on public finances.
The administration also asked that senators allow for the restructuring of the so-called ways and means borrowing from the Central Bank of Nigeria, converting the debt to 40-year bonds at 9% interest, Senate President Ahmed Lawan told lawmakers, citing a letter from President Muhammadu Buhari.
The loans stood at 22.7 trillion naira as of December 19, Lawan said. Buhari also asked for a three-year moratorium on interest payments on the existing debt, and sought another 1 trillion naira from the central bank on the same terms.
The request sheds light on the debt owed to the central bank by the government — data that aren’t readily captured in the outstanding debt inventory of Africa’s largest economy. Even without accounting for the money owed to the central bank, interest payments make up nearly half of Nigeria’s general government revenue, according to the International Monetary Fund.
Nigeria’s public-debt stock was 44 trillion naira on Sept. 30; adding the central bank loans — including the extra 1 trillion naira sought — raises the total by 54% to 67.7 trillion naira. That will add further pressure to debt-service costs, which are forecast to surpass revenues this year, constraining the country’s capacity for critical spending.
Such a level of debt makes Nigeria’s “fiscal position highly vulnerable to real interest rate shocks,” the IMF said. “It also leaves little fiscal room for vital social spending on education and health, where Nigeria fares poorly compared to peer countries in sub-Saharan Africa.”
Africa’s most populous nation has relied on the central bank for the easy loans instead of implementing spending reforms after revenue collapsed on lower oil prices and production. This has “complicated the macroeconomic management with a visible impact on inflation, costs of debt servicing, and debt transparency” the World Bank said.
“The restructuring is unlikely to end government’s excessive reliance on the central bank as far as actual revenue continues to be below budgeted revenue,” Abdulazeez Kuranga, a strategist at Codros Capital.