By Oludare Mayowa
Following the approval of the National Assembly for the federal government to restructure its borrowing from the Central Bank of Nigeria (CBN), the Debt Management Office (DMO) has said that the N23.72 trillion will now be securitized into 40-year debt notes at a 9 percent interest rate per year.
A statement by the debt office said the securities will not be issued to raise fresh funds but will be issued to the CBN, which means it will now also be including them in the nation’s debt stock.
The bond conversion, which would ultimately move the amount from the balance sheet of the CBN to the DMO for management, have a three-year moratorium on the principal only, which translates to the fact that the government would not be expected to redeem part of the debt for the period of the moratorium.
The debt office said that with the approval by the legislative arm of government, the securitization would improve debt transparency as the securitized Ways and Means Advances will now be included in the public debt statistics.
“It will reduce the debt service cost as the new interest rate is 9 percent p.a. compared to the Monetary Policy Rate plus 3 percent, which translates to 20.5 percent p.a. (MPR 18.5 percent + X) currently being charged on the Ways and Means Advances.
“The large savings arising from the much lower interest rate will help reduce the deficit in the budget and, expectedly, the level of new borrowings,” the DMO said.
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It said, “Provisions for interest on the securitized Ways and Means Advances (starting from 2023) and principal repayments starting from year four (4) will be made in the Annual FGN.
“The securitization of the Ways and Means Advances does not involve new money being given to the FGN as the CBN had already provided the funds to the FGN.”
Both arms of the National Assembly this week approved the request of President Mohammadu Buhari to restructure the overdraft from the CBN in a bid to reduce its debt service burden.
However, many Nigerians have kicked against the move because the funding by the CBN was considered illegal and against the provisions of the relevant Acts, including that of the regulatory bank.
According to Section 38 of the CBN Act, “the Central Bank may grant temporary advances to the Federal Government in respect of a temporary deficiency of budget revenue at such rate as the Bank may determine.”
But it adds: “The total amount of such advances outstanding shall not at any time exceed five percent of the previous year’s actual revenue of the Federal Government. All advances shall be repaid as soon as possible and shall, in any event, be repayable by the end of the Federal Government financial year in which they are granted, and if such advances remain unpaid at the end of the year, the power of the bank to grant such further advances in any subsequent year shall not be exercisable unless the outstanding advances have been repaid.”
When the Buhari administration assumed office, CBN’s overdraft to the government stood at N789.7 billion. The amount has since ballooned by 2,902 percent to its current value of N23.72 trillion.
(omayowa@globalfinancialdigest.com; Newsroom: +234 8033 964 138)
