Experts see CBN’s N22.7trn W&M securitisation easing FG debt pressure

By Onome Amuge

Amid concerns about Nigeria’s rising debt stock, the National Assembly recently approved the request by President Muhammadu Buhari to restructure the N22.7 trillion loan from the Central Bank of Nigeria (CBN) under the Ways and Means provision.

The Ways and Means provision allows the government to borrow short-term or emergency loans from the apex bank to fund delayed government expected cash receipts of fiscal deficits.

However, the N22.7 trillion Ways and Means Advances,do not represent new borrowings, but overdrafts by the CBN to the federal government. The advances are statutorily managed by the Ministry of Finance and the office of the accountant-general in the consolidated revenue fund (CRF) where it is domiciled.

According to the Debt Management Office (DMO), the loans will be securitised with a tenor of 40 years, a moratorium (on principal only) of three years, an interest rate of nine per cent per annum, and repayment (amortising) to be done in 37 years.

Also, provision for interest in the securitised Ways and Means advances,starting from 2023, and the principal payment, starting from four years ahead, would be made in the federal government annual budgets.

Meanwhile, the implementation of the restructuring request will be upon receipt of the approval of the House of Representatives.

Addressing newsmen on the development, Patience Oniha, director general of the Debt Management Office said the securitisation of CBN’s N22.7 trillion Ways and Means advances to the federal government will improve debt transparency.

Oniha explained that securitisation would allow the inclusion of the  Ways and Means advances in public debt statistics, which would reduce the debt service cost as the new interest rate is nine per cent per annum while the Monetary Policy Rate of the CBN is 21 per cent per annum.

“The large savings arising from the much lower interest rate will help to reduce budget deficits and expectedly, the level of new borrowings,’’ she said.

She further explained that the securitisation did not involve new loans as the CBN had already provided the funds to the federal government.

In respect of the securitisation of the Ways and Means, Uche Uwaleke, a Professor of Capital Market at the Nasarawa State University, Keffi, said the securitisation of the CBN’s N22.7 trillion Ways and Means Advances will afford the federal government a ‘breather’ in terms of debt service burden.

Uwaleke, in an interview with the News Agency of Nigeria (NAN) in Abuja, explained that the debt relief is in view of the fact that repayment of the over N22 trillion will now be spread over 40 years with a three year grace period on the principal sum.

He noted that the cost of annual debt service will reduce given the concessional rate of nine per cent as against the current 20.5 per cent interest rate charged on CBN’s Ways and Means.

“The cumulative effect of these would be a reduction in government budget deficit and freeing up resources that could be applied to more productive areas,” he said.

Uwaleke also emphasised that since the securities will only be taken up by the CBN and not the public, the fear that it will crowd out the private sector was no longer there.

Going forward, the financial expert advised that adequate safeguards should be put in place to ensure that CBN’s Ways and Means Advances are curtaile due to its negative impact on the general price level.

He added that the relevant provisions of the CBN Act should clearly stipulate the conditions under which debt limits can be breached, the process which should involve approval by the National Assembly as well as stiff sanctions for breach of the limits provided in the Act without following due process.

Sharing a similar sentiment, Tope Fasua, CEO of Global Analytics Consulting Limited, said the securitisation would give the next government and those to come “some breathing space”.

According to Fasua, the securitisation means that successive governments will have to look elsewhere but the CBN for short-term finance because the Buhari administration has totally overdrawn that facility for at least the next 12 years.

“Further implication is that incoming administrations must be ingenious in tapping into other revenue sources and get serious about accruing Nigeria’s taxes, rents, rates, dues, duties, fines, fees and levies wherever they may be. However, there are still great opportunities for raising finance local and foreign. I personally favor grounding our debts locally,” he said.