Nigeria is preparing for a potential increase in its domestic debt, with indications that it could exceed N57.5 trillion. This comes after the recent restructuring of the outstanding balance on the Ways and Means Advances from the Central Bank of Nigeria (CBN).
According to the Debt Management Office (DMO), the country’s domestic debt has risen by N1.80 trillion, reaching N50.2 trillion by the end of the third quarter of 2023. This increase is primarily due to increased borrowing from the bond market.
The country’s domestic debt is expected to rise even further as the Senate has approved the securitization of the outstanding N7.3 trillion in Ways and Means Advances, in line with President Bola Tinubu‘s request.
This legislative endorsement is likely to contribute to a further increase in the country’s domestic debt, following a pattern observed in previous restructuring efforts.
Ways and Means Advances is a government program that allows them to get emergency funding from the CBN to address cash flow problems.
Between May 3 and 4, 2023, both chambers of the National Assembly approved the securitization of N22.7 trillion from the N23.3 trillion previously borrowed from the CBN. This decision led to a significant increase in Nigeria’s total public debt.
The debt was then transferred to the DMO with a 40-year repayment period, a 3-year grace period, and an interest rate of 9%. The restructuring of the debt caused Nigeria’s total debt to rise to N87.38 trillion by the end of the second quarter of 2023. This was a substantial increase of 75.29%, equivalent to N37.53 trillion, compared to the N49.85 trillion recorded at the end of March 2023.
Allub Times reports that the Federal Government of Nigeria borrowed a significant N2.94 trillion from the CBN through Ways and Means Advances between July and December 2023. It was also revealed that the government borrows from the CBN through this program to pay off domestic debt.
As Nigeria deals with the complexities of its fiscal situation, the impact of the recent debt restructuring on domestic debt levels will require a careful evaluation of debt sustainability and effective management strategies.
