Governors urge FG to convert N19 trillion of CBN debt into 100-year bonds

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Governors in Nigeria have urged the federal government to immediately end the Central Bank of Nigeriathe financing of government budget expenditures as part of a coordinated effort to rescue the nation from fiscal collapse.

The governors, who made the proposal at a meeting with President Muhammadu Buhari in July, also urged the government to convert the outstanding N19 trillion Ways and Means loans obtained from the CBN into a 100-year bond with a proposed interest rate of one per hundred.

Officials familiar with the details of the meeting, who spoke to PREMIUM TIMES, explained that the governors were concerned about the deteriorating state of the economy and a proposal to restore fiscal discipline was presented to the federal government.

The governors lamented that the dollar exchange rate had deteriorated from N197 (and N300 in the parallel market) to N410 (and N652 in the parallel market) under the supervision of the Buhari government.

One of the governors raised concerns about how the CBN has printed N19 trillion for federal government spending in flagrant violation of the law, noting that trillions of naira seeking a few billion dollars will put pressure on foreign exchange reserves. and the exchange rate. The governor also added that CBN’s ‘fixed exchange’ stance discouraged foreign investment ($90 billion investment commitments peak in 2018, to $20 billion in 2021) and diaspora inflows ($20 billion million), just when the gasoline subsidy has wiped out all reserve accumulations. .

The governor also lamented how the CBN has resorted to the use of swaps, deferred letters of credit (LC) and other methods to hide the true levels of the nation’s reserves, which is $15 billion against the $36 billion it claimed. at the end of June 2022.

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growing crisis

The recommendations are among several schemes the governors hope will help stem Nigeria’s economic decline. PREMIUM TIMES reported on Thursday how governors advised the Buhari administration to pay civil servants over the age of 50. We also report that Nigeria’s foreign reserves stand at just $15 billion, well below the $36 billion balance in gross foreign reserves claimed by the bank. With the nation spending N5.9 billion on imports in the first quarter of the year, the $15 billion reserves would barely cover four months of imports.

Policy experts and financial analysts say this would not have mattered much were it not for the recent difficulties in different sectors of the economy, especially export restrictions that have prevented the nation’s oil monopoly from increasing reserves in the last six months. . Similarly, the NNPC’s inability to submit oil sales receipts to the CBN, despite high crude prices, is seen as one of the reasons why the naira has recently plunged in the parallel market.

A banker who spoke on condition of anonymity said the reported balance of gross foreign reserves has long masked problems. Not only is the gross balance of foreign reserves uncountable (according to CBN, the reserve is a 30-day moving average effective November 2011), by not excluding the lead bank’s contingent liabilities, the report flatters the resources available to the bank. central to defending the external position of the economy.

The data shows that the Nigerian government’s total loan from the CBN through Ways and Means Advances increased from N17.46 trillion in December 2021 to N19.01 trillion in April 2022, which represents an increase of N1.55 trillion in the first four months of 2022.

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The N19.01 trillion is not part of the country’s total public debt stock, which stood at N41.60 trillion as of March 2022, according to the Debt Management Office. The debt stock only captures the debts of the Federal Government of Nigeria, the 36 state governments and the Federal Capital Territory.

ways and means

The Ways and Means Advances is a loan facility through which the CBN finances government budget deficits. Section 38 of the CBN Act 2007 allows the bank to make temporary advances to the government, but the total amount of such advances outstanding shall not at any time exceed five percent of the actual revenue of the federal government for the preceding year.

Godwin Emefiele, Governor of the Central Bank of Nigeria (CBN).

In recent years, the Nigerian government has repeatedly violated this section of the CBN Act, raising concerns among policy experts and international rating agencies. But Nigeria’s central bank governor, Godwin Emefiele, has always justified why the bank is printing more money to finance the federal government’s budget, saying: “If the government cannot finance all of its obligations, the central bank should offer support.” as lender of last resort. ”

Global institutions such as the World Bank and the rating agency Fitch have repeatedly warned against the uncontrolled financing of the budget deficit of the Nigerian government by the CBN. In 2021, in a report titled “The Dangers of Deficit Monetization in Nigeria,” Capital Economics, an independent London-based economic research outfit, said that over the past six years, about 55 percent of budget deficits Nigerian annuals have been funded by the CBN.

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“Many of the problems plaguing Nigeria’s economy, from high inflation to a persistently overvalued currency, are related to the government’s sustained reliance on the central bank to fill fiscal financing gaps,” he said.

Proposed interventions

As part of the suggestions presented by the governors, the proposal identified that the exchange policy now favors the consumption of the rich in terms of medical tourism, education and cheaper commercial and technical services.

The governors urged ending CBN’s subsidized interventions in the real sector and recapitalizing the relevant institutions to provide these services. They explained that institutions such as the Bank of Agriculture, Bank of Industry, Development Bank of Nigeria, among others, need recapitalization

Similarly, the governors warned that funds in the CBN-controlled Nigerian Incentive-Based Risk Sharing System for Agricultural Loans (NIRSAL) should be redirected to development banks, while the main bank should focus on its core mandates. and statutory. These include exchange rate management, interest rate management and inflation targeting.

Apart from the 100-year bond proposal, which is not exactly new (in 2020, the Austrian government placed a €2 billion bond issue with a yield of 0.88% over 100 years), the governors also warned that the main bank should desist. to compete with commercial and development banks.

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