The Senate has approved President Muhammadu Buhari’s request to restructure a N23.7 trillion ($49 billion) loan the central bank gave his government in violation of the law.
The loan, which was taken in excess of what the law allows, will now be converted into bonds to be repaid over four decades.
The law only allows the Central Bank of Nigeria to provide temporary financing to the federal government, limited at 5% of the previous year’s budget with a mandate that requires payment within the same financial year.
The so-called “ways and means advances” from the CBN increased astronomically to N23.7 trillion in 2022 from N790 billion when Mr Buhari took office in 2015, fuelling inflation the CBN says it is fighting by raising interest rates.
Between January and October 2022, the government accumulated N5.6 trillion. By comparison, during a two-and-a-half-year period from December 2012 to May 2015, the ways and means advances increased by N655 billion, based on data released by the CBN.
– People’s corner
The restructuring means more debt for the country and less money for critical developmental projects. In January, the Debt Management Office said Nigeria’s total debt could rise to $172 billion after the conversion and new borrowings to fund the 2023 budget.
Nigeria spent more than 90% of its revenues on debt repayments last year.
– Piggy Bank
In November, the International Monetary Fund warned that the CBN’s continued financing of government’s deficit complicated efforts to contain inflation.
A former governor of CBN, Sanusi Lamido Sanusi, in 2016 said the central bank’s loans to the government was equal almost 50% of the government’s total domestic debts and was “a clear violation of the Central Bank Act of 2007 (Section 38.2) which caps advances to the FGN at 5 percent of last year’s revenues.”
In 2017, Doyin Salami, a member of the bank’s monetary policy committee, criticised the CBN’s “massive injections of cash” into the economy, and accused it of serving as a “piggy bank” for the government.
– Winding down
As his administration winds down, President Buhari made an attempt in December to obtain a delayed approval for the loan. Senators stonewalled and accused the president of violating the law. They demanded details of how the money was spent.
A report by a senate panel on Wednesday said the money was used to support state governments and fund operations of the federal government. “The advances were made to ensure that the government does not shut down,” it said, according to Bloomberg.
The senators agreed to convert the loans to 40-year debt at 9% interest.
The house of representatives is expected do the same on Thursday, after which Mr Buhari to sign the bill into law before he leaves office on May 29.
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