Servicing CBN loans may cost treasury N4.65tr unless MPC relents
By Jeph Ajobaju, Chief Copy Editor
Abuja may spend up to N4.65 trillion this year to service loans the Central Bank of Nigeria (CBN) granted through Ways and Means (W&M) unless the Monetary Policy Committee (MPC) relents on aggressive monetary tightening
W&M amounted to N22.7 trillion when President Muhammadu Buhari sought Senate approval in late 2022 to securitise the CBN facility.
Buhari disclosed at the signing of the 2023 budget the government could incur an additional N1.8 trillion on interest payment if the plan to convert to a bond fails.
He said the government had agreed to pay the CBN MPR plus 300 basis points (bps) as interest on the facility.
Alternatively, Abuja could convert it to a long-term bond with an arrangement said to have been reached for a 9 per cent offer. But the securitisation plan can only happen if the Senate approves it.
The Senate seems stuck to its guns – wavering from demanding details of the facility to indifference.
Senate President Ahmad Lawan said the Chamber would approve Buhari’s request as long as details of the spending are provided by Finance Minister Zainab Ahmed and Central Bank Nigeria (CBN) Governor Godwin Emefiele.
But the Senate failed to consider the request before proceeding for election break. Senate Leader Ibrahim Gobir, who chairs the special committee seeking the details, said nothing about the matter during the plenary.
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Impact of MPR on loan repayment
“The Ways and Means balance as at 19th December 2022 is N22.7 trillion,” Buhari said in his letter to the Senate, per The Guardian.
“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.”
In December when Buhari sought approval, the MPR was 16.5 per cent. Based on the prevailing MPR, he estimated the differential between the cost of serving the CBN debt and bond issuance at N1.8 trillion.
With the recent raising of the MPR to 17.5 per cent, the government will pay 20.5 per cent (MPR plus three per cent) on the facility unless it is restructured.
The current interest amounts to N4.65 trillion, which could go up if the MPR is raised, and the interest would become much greater than N1.2 trillion allocated for it in the 2023 fiscal framework document.
The interest could clean off 71 per cent of N6.55 trillion provisioned for debt servicing in the 2023 budget.
The plan to restructure the facility to a 40-year bond is considered a strange contemplation in the management W&M and some experts said securitisation is the most feasible option.
It would take the loan off the balance sheet of the CBN and transfer it to the Debt Management Office (DMO) for proper management.
The restructuring would increase national debt to N66.7 trillion from N44 trillion in September 2022.
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