By Tony Obiechina, Abuja
Professor of Capital Market, Uche Uwaleke has warned against further breaching of permissible limits which the Central Bank of Nigeria (CBN) provides funds for the Federal government as enshrined in the CBN Act.
Nigeria’s total debt rose by 32.5 per cent from N46.25trn ($103.1bn) to N68.9trn ($153.7bn) after the ways and means borrowing given to the Federal Government by the CBN led to the securitasation of the debt against the law establishing the apex bank.
The Senate on Wednesday approved the request of President Muhammadu Buhari to restructure the N22.7 trillion loans the CBN extended to the federal government under its Ways and Means provision.
The Ways and Means provision allows the government to borrow from the apex bank if it needs short-term or emergency finance to fund delayed government expected cash receipts of fiscal deficits.
According to the Debt Management Office (DMO), the Ways and Means, which is N22.7trn ($50.6bn), will be issued as a 40-year bond, a move approved by the legislatures.
Reacting to the development on Friday Prof Uwaleke cautioned that adequate safeguards should be put in place to ensure that CBN’S Ways and Means are curtailed due to its negative impact on the general price level.
Uwaleke, Nigeria’s first Professor of Capital market said in a statement:
“In respect of the Securitization of CBN’s Ways and Means the govt debt restructuring arrangement affords it a breather in terms of debt service burden in view of the fact that repayment of the over N22 trillion will now be spread over 40 years with a three year Grace period on the principal sum.
“Similarly, the cost of annual debt service will reduce given the concessional rate of 9% as against the current 20.5% interest rate charged on CBN’s Ways and Means.
“The cumulative effect of these would be a reduction in government budget deficit and freeing up resources that could be applied to more productive areas.
“It’s also important to note that since the Securities will only be taken up by the CBN and not the public, the fear that it will crowd out the private sector is no longer there.
“There’s equally the issue of debt transparency that it engenders. Before now, CBN’s Ways and Means did not form part of the public debt stock reported by the Debt Management Office. Securitization would entail including it as part of the country’s public debt which makes for transparency.
“Be that as it may, it’s important that going forward, adequate safeguards are put in place to ensure that CBN’s Ways and Means are curtailed due to its negative impact on the general price level.
“The relevant provisions of the CBN Act should clearly stipulate the conditions under which debt limits can be breached, the process which should involve approval by the National Assembly as well as stiff sanctions for breach of the limits provided in the Act without following due process”.
