Nigeria To Spend Next 40 Years Repaying Controversial N23.72tr CBN Overdrafts To FG

• Senate approves restructuring of controversial loan
• Reps may accede to request next week
• Liquidation of facilities to be spread to 2063
• Spending requires thorough investment not approval, says Owoh
• Approval could open floodgate of litigation, expert warns
• CBN’s budget support grows by 2,900% in eight years
• Funding prevents shutdown of governance, Senate Committee claims
• Restructuring to reduce cost of servicing loan by 57%

The Senate, yesterday, abandoned its previous hard line stance and approved the conversion to a 40-year bond of the N23.72 trillion Federal Government’s unappropriated expenditure funded by the Central Bank of Nigeria (CBN) through its ways and means (W&M) window.

President Muhammadu Buhari, last year, wrote the National Assembly to approve the amount alongside a fresh N1 trillion it planned to take from the window (bringing the total value earmarked for securitisation to N23.72 trillion) for conversion to a 40-year tenure bond priced at nine per cent.

The bond conversion, which would ultimately move the amount from the balance sheet of the CBN to the Debt Management Office (DMO) for management, has a three-year moratorium, the Buhari administration disclosed.

The Senate and the House of Representatives had at several times turned down approval for lack of proper explanation on how proceeds of the loans would be spent.

With the Senate’s approval, the President’s efforts to push through has now narrowed to the House of Representatives, which had rejected the plea for lack of sufficient explanation of the utilisation of the facility. Sources said the Reps might discuss the request for possible approval when they convene next week.

The lower chamber would have approved the fresh additional borrowing of N1 trillion before proceeding on election recess but held back its approval for the restructuring of the controversial N22.72 trillion, seeking further explanation on the accumulation.

When the lower chamber of the National Assembly approves the request, the amount would be moved from the CBN book where it is currently being serviced at 21 per cent interest. The Federal Government said it agreed to an interest rate payment of the going monetary policy rate (MPR) plus 300 basis points (bps) as the price of the loan. MPR is currently 18 per cent with the possibility of a further upward review.

Buhari hinted late last year that the Federal Government would spend an additional N1.8 trillion servicing the debt except it is converted to a sovereign bond priced at nine per cent. The Guardian had reported that with the current interest of 21 per cent, the government could spend as much as N4.6 trillion as the cost of yearly servicing.

If the President secures consolidated approval in the coming weeks, the current cost of the loan would come down by as much as 57 per cent. But that depends on if the nine per cent negotiated bond price subsists as the cost of commercial debt has increased in the past months.

The approval could open a floodgate of litigation over the legality of the accumulated W&M advanced ab initio. When the Buhari administration assumed office, CBN’s overdraft to the government stood at N789.7 billion. The amount has since 2015 ballooned by 2,902 per cent to its current value (N23.72 trillion).

But the controversy is more about its alleged violation of the CBN Act than the alarming growth. According to Section 38 of the CBN Act, “the Central Bank may grant temporary advances to the Federal Government in respect of temporary deficiency of budget revenue at such rate as the Bank may determine.”

But it adds: “The total amount of such advances outstanding shall not at any time exceed five per cent of the previous year’s actual revenue of the Federal Government. All advances shall be repaid as soon as possible and shall, in any event, be repayable by the end of the Federal Government financial year in which they are granted and if such advances remain unpaid at the end of the year, the power of the bank to grant such further advances in any subsequent year shall not be exercisable, unless the outstanding advances have been repaid.”

Yesterday, a renowned monetary policy expert and professor of applied economics, Godwin Owoh, said Senate’s approval amounts to illegality that would be challenged by the court by interested Nigerians.

Describing the legislative action as approval in arrears, he said the National Assembly should have focused on interrogating how the proceeds of the loans, which were not appropriated.