Total loans from banks to government increased by N8.84trillion or 63.87 per cent to N22.68trillion as at October 2022, from N13.84rillion in December last year, latest data released by the Central Bank of Nigeria (CBN) shows.
According to New Telegraph’s analysis of the updated “Money and credit statistics,” released by the apex bank, over the weekend, indicates that credit to the government headed north in eight out of the 10 months during the review period.
Specifically, the data shows that while net credit to the government rose from N13.84 trillion in December to N14.90trillion at the end of January 2022, it dropped to N14.72trillion in February 2022. However, it increased to N16.32trillion and N16.85trillion in March and April respectively, maintaining an upward trend to hit N22.83trillion in September, before falling to N22.68trillion in October.
Further analysis of the CBN data indicates that unlike in 2021 when bank loans to the government did not exceed the N13.84trillion peak recorded for December, credit to government this year has increased at a faster pace compared with 2021 numbers The development has triggered concerns in some quarters as financial experts believe that the surge in credit to the government could negatively impacts future income and economic growth.
Indeed, in his personal statement at the CBN’s Monetary Policy Committee (MPC) held in March, a member of the committee, Professor Festus Adenikinju, stated: “I am also concerned about the rising share of the government in total credit to the domestic economy. Credit to the government in February when annualized is far above the provisional benchmark for 2022. “The rise in public debt is a constraint on future income and economic growth.
I believe that we must signal to the government the costs of deficit financing and continue to prod the government to explore alternative financing mechanisms for infrastructural spending.” Similarly, in his personal statement at the meeting of the MPC held in September, Adenikinju stated: “The Fiscal Sector remains weak.
FGN revenue for the first six months underperformed by 49.84 per cent. “The underperformance of the FGN revenue was driven by decline in FAAC receipts (48.56%), Independent Revenue (52.12%), Transfer from Special Levies account (56.57%), FGN Share of Federation account (54.48%), Operating Surplus (82.28%) and Education Tax (89.84%).
“As was the norm, capital expenditure underperformed by 47.51 per cent, while recurrent expenditure overshot the budget by 3.27 per cent. Total debt service exceeded the budget by 4.35 per cent. Interest on Ways and Means Advances accounted for N714.74 billion.”
With members of the MPC, at their meeting in September, voting to raise the Monetary Policy Rate (MPR) from 14 per cent to 15.5 per cent (the third consecutive increase of the rate in 2022), as part of measures to rein in inflation, analysts predict that government borrowing cost is likely to rise to record levels.
For instance, commenting on the monthly auction of Federal Government bonds held by the Debt Management Office (DMO), analysts at Coronation Merchant Bank, in a report issued last week, stated: “According to the DMO’s bond issuance calendar, it had set out to raise a maximum of N2.47 trillion through FGN bonds to meet a domestic borrowing target of N3.53 trillion. “However, year-to-date, it has raised N2.75 trillion, exceeding the target by c. N284.4 billion.”
The analysts further said: “Recently, Moody’s Investors Services downgraded Nigeria’s local currency and foreign currency long term issuer ratings from ‘B2’ to ‘B3’. “This was followed by Fitch Ratings, which downgraded Nigeria’s long-term foreign currency issuer default rating from ‘B’ to ‘B-.’
“According to the ratings agencies, justification for the downgrades include significant deterioration in FGN’s finances and its external position despite higher oil price in 2022, high debt service costs, high cost of fuel subsidy, stagnant oil production and fx liquidity pressures. “We note that the average yield for FGN Eurobonds remained largely unchanged after the ratings action, as investors had already priced in the reasons behind the downgrades.
“We maintain our view that there is likely to be increased borrowings in the domestic debt market as the Eurobond market remains expensive for emerging economies like Nigeria.”