Yesterday, the Senate approved the conversion of N23.72tn unappropriated expenditure funded by the Central Bank of Nigeria (CBN) through its ways and means (W&M) window into a 40-year bond, marking a departure from its previous hard-line stance.
Last year, President Muhammadu Buhari requested the National Assembly’s approval for N23.72tn conversion into a 40-year tenure bond priced at nine per cent, along with a fresh N1tn to be taken from the Central Bank of Nigeria’s ways and means window. The bond conversion will transfer the amount from the CBN’s balance sheet to the Debt Management Office (DMO) for management, with a three-year moratorium, as stated by the Buhari administration.
Approval for the loans had been previously turned down by both the Senate and the House of Representatives due to insufficient explanation on how the proceeds would be utilized. However, with the Senate’s recent approval, the President’s push for the loans now hinges on the House of Representatives, which had also rejected the plea. Sources suggest that the House of Representatives may discuss the request for possible approval when they convene next week.
The lower chamber had the opportunity to approve a fresh additional borrowing of N1tn before proceeding on election recess, but opted to withhold its approval for the restructuring of the controversial N22.72tn. The members requested further clarification on the accumulation before granting approval. If the lower chamber approves the request, the amount will be moved from the CBN’s balance sheet, where it is currently being serviced at a 21% interest rate. The Federal Government has agreed to an interest rate payment of the current monetary policy rate (MPR) plus 300 basis points (bps) as the price of the loan, with the MPR currently at 18% and the possibility of an upward review.
Late last year, President Buhari hinted that the Federal Government would spend an additional N1.8tn servicing the debt unless it is converted to a sovereign bond priced at nine per cent. The Guardian reported that, with the current interest rate at 21 per cent, the government could spend as much as N4.6tn as the annual cost of servicing. If the President secures consolidated approval in the coming weeks, the cost of the loan could come down by as much as 57 per cent. However, this is contingent upon the negotiated bond price of nine per cent, which may not be sustainable due to the recent increase in commercial debt cost.
The approval may lead to a deluge of litigation regarding the legality of the accumulated W&M advanced ab initio. When the Buhari administration took office, CBN’s overdraft to the government was N789.7bn. Since then, the amount has grown by 2,902% to its current value of N23.72tn. However, the controversy centers more on its alleged violation of the CBN Act than its 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 budget revenue deficiencies at a rate determined by the Bank.” However, it adds that “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’s financial year in which they are granted. If such advances remain unpaid at the end of the year, the bank’s power to grant further advances in any subsequent year shall not be exercisable unless the outstanding advances have been repaid.
Yesterday, Professor of Applied Economics and monetary policy expert, Godwin Owoh, criticized the Senate’s approval, stating that it would be challenged in court by interested Nigerians for its illegality. Owoh argued that the National Assembly should have focused on investigating how the unappropriated loans’ proceeds were spent. The CBN’s Ways and Means window was initially designed to provide short-term or emergency funding and cater to delayed expected cash receipts.
The Senate approved the restructuring of the W&M advances, based on the report of its special committee on the issue, which considered the President’s request. The Senate stated that the advances were necessary to ensure that the government did not shut down.
The Senate has granted approval for the balance of the supplementary budget and interest accrued on W&M advances, amounting to N180.46 billion. However, the upper legislative chamber cautioned that if there is a need to exceed the previous year’s revenue by five percent, approval must be sought from the National Assembly.
Regarding the states whose budget shortfalls were also covered by CBN lending, the Senate advised the Federal Government to begin the process of recovering the portion of the W&M given as loans to state governments. The Senate believes that further deferment of loan repayment by states will negatively impact the economy.
The government was also urged to expedite the repayment of loans through treasury bills and bond issuance. The Senate emphasized that future accumulation of loans without recourse to the National Assembly would not be tolerated.
The Senate has granted approval for the balance of the supplementary budget and interest accrued on W&M advances, amounting to N180.46 billion. However, the upper legislative chamber cautioned that if there is a need to exceed the previous year’s revenue by five percent, approval must be sought from the National Assembly.
Regarding the states whose budget shortfalls were also covered by CBN lending, the Senate advised the Federal Government to begin the process of recovering the portion of the W&M given as loans to state governments. The Senate believes that further deferment of loan repayment by states will negatively impact the economy.
The government was also urged to expedite the repayment of loans through treasury bills and bond issuance. The Senate emphasized that future accumulation of loans without recourse to the National Assembly would not be tolerated.
According to the report, the Ministry of Finance, Budget, and National Planning has made plans to convert CBN loans into tradable securities, such as treasury bills and bond issuance.
Senator George Thompson Sekibo mobilized his colleagues to reject the President’s request earlier, stating that the advances were unconstitutional and illegal. He informed the Senate that the President’s action violated the CBN Act and the Senate standing rules. The Senator further emphasized that details regarding the funds were not provided for Senate approval, despite being taken on behalf of the Nigerian people.
Despite Senate President Ahmed Lawan’s repeated attempts to convince the Senate to approve the President’s request, the plea was ultimately rejected.