By Emmanuel Akinmola
Unless the Monetary Policy Committee (MPC) makes a U-turn on its aggressive monetary tightening, the Federal Government may pay as much as N4.65 trillion servicing its debt held by the Central Bank of Nigeria (CBN) this year.
As of the end of last year when President Muhammadu Buhari sought the Senate’s approval to securitise the CBN facility, the ways and means (W&M) stood at 22.7 trillion.
At the signing of the 2023 budget, the President said the government could incur an additional N1.8 trillion on interest payment if the plan to convert to a bond fails.
The government, according to Buhari, had agreed to pay the CBN MPR plus 300 basis points (bps) as interest on the facility.
Alternatively, the government converts it to a long-term bond with an arrangement said to have been reached for a nine-percent offer. But the securitisation plan can only happen if the Senate approves the plan.
The Senate seems stuck to its gun – from demanding an explanation of the details of the facility to indifference.
The Senate President, Ahmad Lawan, had said that the Senate would approve the President’s request as long as the required details of the spending were provided by the Finance Minister, Zainab Ahmed, and Governor of the Central Bank, Godwin Emefiele.
But last at the plenary, the upper chamber failed to consider the request before proceeding for the election break. The report said the Leader of the Senate, Ibrahim Gobir, who chairs the special committee set up to get details of the document from the relevant offices said nothing about the issue 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.
In December when the President sought approval, the MPR was 16.5 per cent. Based on the prevailing MPR, the President estimated the differential between the cost of serving the debt as held by the apex bank and bond issuance at N1.8 trillion.
With the recent upward review of the MPR to 17.5 per cent, the government will be paying 20.5 per cent (MPR plus three per cent) on the existing facility unless it is restructured. The current interest amounts to N4.65 trillion, a figure that could go up if the MPR is raised beyond its current benchmark.
The amount the government could pay to service the debt held by the apex bank is remarkably higher than N1.2 trillion allocated for the purpose in the 2023 fiscal framework document. It could clean off 71 per cent of N6.55 trillion provisioned for debt servicing in the 2023 budget.
Whereas the plan to restructure the facility to a 40-year bond is considered a strange contemplation in the management WM, some experts suggested that securitisation is the most feasible option in taking it off the balance sheet of the CBN, and transferring it to the Debt Management Office (DMO) for proper management.
The restructuring would increase the documented sovereign debt to N66.7 trillion. The country’s public debt stood at N44 trillion as at the end of September 2022. Zainab had, at a public event, admitted that some of the sub-national debts had not been aggregated into the national basket, but that efforts were being made to do so.
