Nigeria’s debt burden is poised to jump 50% after lawmakers approved President Muhammadu Buhari’s request to convert 22.7 trillion naira ($49 billion) in loans from the central bank into bonds.
(Bloomberg) — Nigeria’s debt burden is poised to jump 50% after lawmakers approved President Muhammadu Buhari’s request to convert 22.7 trillion naira ($49 billion) in loans from the central bank into bonds.
The Senate’s acceptance is expected to push the West African nation’s official debt-to-gross domestic product ratio toward a 40% limit set by the government. “The advances were made to ensure that the government does not shut down,” according to a report by a special committee that the upper chamber of parliament endorsed on Wednesday.
The move will push Nigeria’s debt to a record of at least 69 trillion naira, adding to the challenges facing President-elect Bola Tinubu, who takes over on May 29. The Central Bank of Nigeria is allowed to provide temporary financing to the federal government, but Buhari’s administration has disregarded a law restricting outstanding loans to 5% of the previous year’s budget and mandating that the funding be repaid within the same year.
“The capital market does not have the capacity to absorb 22.7 trillion worth of debt,” said Adetilewa Adebajo, chief executive officer of Lagos-based CFG Advisory. “The federal government is going to crowd out the private sector. It is surprising the Senate” is violating the law, he said.
Endorsing the president’s plan to restructure the loans to be paid over a longer period and at a more favorable interest rate, the Senate committee recommended that future governments should be required to obtain the authorization of lawmakers to bypass the legal borrowing threshold.
The so-called ways and means advances from the central bank have increased more than 3,000% to 23.8 trillion naira since Buhari assumed the reins of Africa’s biggest economy in March 2015.
Still, the debt conversion will cut the interest rate by half on the overdrafts from the central bank, according to Buhari. Nigeria’s dollar bonds due 2051 gained 1 cent on the dollar as of 12:37 p.m. in London on Thursday.
“Due to the serious shortfall in government revenue, the federal government in order for the economy not to collapse, was compelled to borrow repeatedly from the CBN, exceeding the 5% threshold,” the Senate report said.
Making the request in December, Buhari said the restructuring plan would help bring down the state’s debt service bill, which consumed 96% of his government’s revenue last year. The House of Representatives is yet to approve the proposal.
–With assistance from Emele Onu and Monique Vanek.
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