"A $50bn overdraft set to become Nigeria\u2019s debt"

" A $50bn overdraft set to become Nigeria\u2019s debt \r\n\r\nNigerian President Muhammadu Buhari is pushing lawmakers to let him add an unpaid $50 billion overdraft from the central bank to the country\u2019s public debt pile despite concerns about the legality of the borrowing.\r\n\r\nThe outgoing head of state has asked the Senate to approve his plan to convert 22.7 trillion naira ($50.4 billion) in advances from the Central Bank of Nigeria into bonds that will be repayable over decades. The move would immediately boost the country\u2019s official debt load by more than half, propelling Nigeria\u2019s debt-to-GDP ratio toward the 40% limit set by the administration.\r\n\r\nThe International Monetary Fund and World Bank already include the central bank loans in their calculations of Nigeria\u2019s debt stock. The overdraft is more than the total debt of Ghana or Bahrain, and more than twice that of Tunisia or Iceland.\r\n\r\nThe matter is near the top of the agenda as Senators resumed work on Jan. 17, almost three weeks after the upper chamber suspended a rowdy emergency session to consider the president\u2019s request\r\n\r\nSpokesmen for Buhari and the CBN didn\u2019t respond to requests for comment.\r\n\r\nThe central bank can provide temporary financing to the federal government, but Buhari\u2019s administration has disregarded a law restricting outstanding loans to 5% of the previous year\u2019s budget and mandating that the funding be repaid within the same financial year.\r\n\r\nBetween the president\u2019s arrival in office in May 2015 and last October, the outstanding balance of so-called \u201cways and means advances\u201d exploded nearly 30-fold from 790 billion naira to 23.8 trillion naira, according to CBN data.\r\n\r\nThe \u201cfederal government\u2019s accumulation\u201d of the loans \u201cviolates the law,\u201d said Vahyala Kwaga, senior researcher at BudgIT, a Nigerian civic group that tracks public expenditure. Advances in the last three years exceeded 100% of the government\u2019s revenue during the preceding years.\r\n\r\nA spokesman for Finance Minister Zainab Ahmed said the government had to wait for the passage of legislation in December 2021 before it had \u201cthe legal basis for formally repaying\u201d the loans \u201cthrough securitization.\u201d He didn\u2019t answer a question about whether the overdraft was illegal.\r\n\r\n Elections Loom \r\n\r\nAt the inconclusive Senate meeting on Dec. 28, some lawmakers demanded more information about how the government has spent the money and challenged the legal basis of the financing. Buhari has said their refusal to endorse the plan \u2014 which halves the interest rates to 9% and extends the repayment period over 40 years \u2014 would cost the government an additional 1.8 trillion naira this year. The country \u201cstands to lose significantly\u201d if the Senate declines the president\u2019s proposal, the finance minister\u2019s spokesman said.\r\n\r\nThe government spent 1.64 trillion naira paying interest on central bank loans in the first 11 months of last year, equivalent to a quarter of federal revenue over the same period, according to data published by Nigeria\u2019s Budget Office.\r\n\r\nUnder Buhari, Nigeria\u2019s total public debt had almost quadrupled to 44 trillion naira in September. Assuming lawmakers sign off on the president\u2019s plan, that figure will officially reach 77 trillion naira by May, according to a forecast by the Debt Management Office.\r\n\r\nThe DMO raised Nigeria\u2019s debt-to-GDP ratio target from 25% to 40% in 2021 \u201cin anticipation\u201d of the legislative approval being sought by Buhari, DMO Director General Patience Oniha said in an email. The IMF estimated last February that the ratio will hit 43% \u201cin the medium term.\u201d\r\n\r\nAny reaction from international markets \u201ccould be muted as the securitization of the \u2018ways and means\u2019 debt had been expected for some time,\u201d according to Samir Gadio, head of Africa strategy at Standard Chartered Bank in London. \u201cPerhaps the most important point for investors is that \u2018ways and means\u2019 financing does not re-emerge in the future,\u201d he said by email.\r\n\r\nBuhari hopes to secure consent before polls to elect his successor next month. \u201cThere\u2019s no choice but for the debt to be repaid and the Senate should, in the overall national interest, approve the best lawful manner of doing so,\u201d Kingsley Moghalu, a CBN deputy governor from 2009 to 2014 who heads an Africa-focused economic think-tank, said by email.\r\n\r\nBut lawmakers should \u201ccondemn this fiscal rascality and stress that its approval should not be considered as a precedent,\u201d Moghalu said, adding that the \u201cillegal lending\u201d has \u201ccontributed hugely to Nigeria\u2019s current inflation problem.\u201d\r\n\r\nSenate President Ahmad Lawan said on Tuesday that the chamber is ready to take a decision on the president\u2019s request this week, as long as the CBN and finance ministry quickly supply the \u201cnecessary information required.\u201d\r\n\r\n Debt Service \r\n\r\nThe government spent 80% of its revenue on servicing debt last year and the IMF predicts it soon will not raise enough income to cover those obligations.\r\n\r\nThere has been \u201ca complete absence of restraint\u201d by the government and \u201ccomplicity on the part of the CBN in allowing such activities to go on unchecked,\u201d Kwaga said.\r\n\r\nEndorsement of the proposed restructuring \u201cwill allow us to have our full debt stock recorded,\u201d Dele Afolabi, director of the portfolio management department at Nigeria\u2019s Debt Management Office, said during a webinar on Jan. 6.\r\n\r\n\u201cAn overdraft is already on the books, the money is already outstanding,\u201d he said."

"A $50bn overdraft set to become Nigeria\u2019s debt"

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