The Federal Government (FG) has set the terms for the conversion of its stock of central bank overdrafts into long-term notes in a bid to create transparency around its dependence on that source of funding.
The N10 trillion ($25.6 billion) debt will be exchanged for 30-year notes issued to the central bank, Patience Oniha, head of the Debt Management Office said by email. The agreement on timing for the conversion needs to be finalized to get the required approval from the cabinet, at the earliest in the second quarter, Oniha said.
The Nigerian government became dependent on central bank borrowing after oil prices collapsed in 2015. Earnings from crude sales account for about half of government income. The financing helped plug spending shortfalls as non-oil revenues failed to cover the gap created by lower earnings from crude exports.
The increasing reliance on Central Bank of Nigeria overdrafts has come with negative consequences, the International Monetary Fund (IMF) said in a report published last week.
“The financing is costly for the federal government at interest rates of the monetary policy rate plus 300 basis points, and for the CBN, with sterilization done through issuance of open market operation bills,” the IMF said.
The converted debt will be amortized over 30 years starting with a two-year moratorium when the government will not pay anything, Oniha said. The central bank will decide whether the securities will be sold to the public.
The conversion will add to Nigeria’s debt stock, which stood at N49 trillion at the end of last year, according to IMF estimates. Public debt, including the central bank overdrafts, as a proportion of gross domestic product rose to 34.4 per cent in 2020 from 29.1 per cent in 2019, IMF data shows. The lender forecasts the debt to GDP ratio will remain largely unchanged until 2023 when it will rise to 35.5 per cent of GDP.
