On Wednesday, the House of Representatives approved the request by President Muhammadu Buhari to restructure the N22.7 trillion loan from the Central Bank of Nigeria (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.
In December 2022, the President had asked both chambers of the National Assembly to approve his proposal. The said amount is the monies collected through the CBN’s Ways and Means since the beginning of the Buhari-led administration.
The debt as at December 2022 stood at N22.7 trillion with securities such as treasury bills and bonds issuance.
Facts about the N22.7trillion
- It is not a request for a fresh loan.
- The money constitutes Ways and Means of CBN to the Federal Government (CBN’s loan to the Federal Government)
- The approval granted by the National Assembly is for the securitization of the loan.
‘Securitization is the process of taking an illiquid asset or group of assets and, through financial engineering, transforming it into an investable security’.
- As a result of the above, the loan will now be captured under the nation’s debt profile.
- By this, the nation’s total debt (FG, States and Local Governments) now stands at N68.9 trillion.
- The loan has a tenor of forty years and a three-year moratorium (grace period)
- The grace period is on the principal only.
- It comes at an interest rate of nine percent per annum.
- The approval of the Senate and House of Representatives is required for the process.
Implications of the Securitization
What are the benefits of the securitization of the said amount.
- Better debt transparency and management.
- Lower cost of debt service. Previously, the loan was being serviced at an interest rate of 21% as against the 9% after the Securitization.
- Savings from the lower interest rate will reduce the budget deficit and hopefully new borrowings.
Writing by Biodun Dare; Editing by Annabel Nwachukwu