BY ROTIMI DUROJAIYE
Despite outrage at Wednesday’s Senate approval of President Muhammadu Buhari’s request to restructure the N23.7 trillion loans from the Central Bank of Nigeria extended to the Federal Government under its Ways and Means provision, the House of Representatives, on Thursday, assented to the president’s controversial CBN overdrafts.
The W&M 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.
The Federal Government had said it would repay the loan, which as at December 2022 stood at N23.7 trillion with securities such as treasury bills and bonds issuance.
Buhari, had in December 2022, asked both chambers of the National Assembly to approve his proposal, but the lawmakers who had promised to consider the request before proceeding for the election break, failed to list it for consideration during plenary in January.
However, presenting the report at the Committee of the whole house on Thursday, the House passed a resolution to approve same: “Approve the securitisation of the total outstanding W&M amount under the following terms: amount N23,719,703,774,306.90; Tenor 40 years; Moratorium on Principal Repayment three years; Pricing/Interest Rate nine per cent per annum.”
The report presented by three committees of finance, banking and currency, loans and aid management stood in the name of the chairman, committee on finance, James Faleke.
The Deputy Speaker, Idris Wase, who presided over the plenary, directed the clerk to make copies of the reports available for consideration on Tuesday.
EXPERTS KICK
In his reaction, an economist, Adetilewa Adebajo, said Nigerians are indirectly paying the N23.7 trillion extra-budgetary spending. According to him, citizens are paying the loan through raging inflation.
Adebajo, the chief executive officer of CFG Advisory, said the lending had been pushing up Nigeria’s inflation rate and making the cost of lending to banks go higher.
The economist, while discussing the economic challenges before the incoming administration of Bola Tinubu on a television programme monitored by The Point, stressed the importance of institutional reforms of the CBN, Ministry of Finance and the Ministry of Industry, Trade and Investment to drive economic growth.
He said: “There has to be alignment of monetary and fiscal policies. Lack of it was the greatest undoing of the current administration.
“Right now, the economy is not attracting enough capital inflow because of how poorly it has been managed. There is an under-performance of capacity even when Nigeria remains Africa’s largest economy.”
On the danger the Federal Government’s massive borrowings from CBN constitutes to the economy, Adebajo maintained that the inability to repay was responsible for rising inflation, rising cost of borrowing, and crowding out of the private sector from business.
The Federal government had at some point sought to securitise the debts, but economic experts condemned the move as unwise economically.
“It is curious that for seven good years, the government had engaged in borrowing such humongous amounts without paying interest let alone the principal. Instead, it was accumulating the debts alongside the ones being borrowed from outside sources”
Adebajo advised the Federal Government to adopt options within the Debt Management Office Act to refinance N23.7 trillion of Nigeria’s total debts, instead of securitising it.
He proposed a resolution trust, a special purpose vehicle (SPV) backed by legislation within the current DMO Act and framework for refinancing of the nation’s burgeoning debts, as against securitising the ways and means of debt financing on the CBN balance sheet.
He suggested that the Federal Government should, as a matter of urgency, stop financing the country’s debts through ways and means, which he described as “illegal.”
In separate reactions, the pan-Yoruba socio-political organisation, Afenifere; National Association of Nigerian Students, Zone D and a lecturer at Babcock University, Ilisan-Remo, Ogun State, Yinka Akintunde, also berated Buhari for flouting Section 38 of the CBN Act by obtaining overdraft and advances via W&M from the apex bank to the tune of N23.7 trillion.
Afenifere, through its National Publicity Secretary, Jare Ajayi, and the Coordinator of NANS Southwest Zone D, Emmanuel Olatunji also chided the National Assembly for the laxity and abdication of its oversight functions.
When contacted, Ajayi expressed shock at the level of government’s violation of the relevant law as well as the gargantuan sum borrowed all through the tenure of the outgoing Buhari administration.
Ajayi submitted that although the law of the land allows the government to borrow money from the Central Bank of Nigeria , “but it must be for a short while – just to bridge ‘temporary deficiency’ as clearly in Section 38 of the CBN Act, 2007”
He went further to add that the same section also makes it mandatory for the government to repay such a loan with interest.
“It is curious that for seven good years, the government had engaged in borrowing such humongous amounts without paying interest let alone the principal. Instead, it was accumulating the debts alongside the ones being borrowed from outside sources.
“The National Assembly cannot pretend not to know what was going on. Apart from the fact that the issue features often on the paper of the CBN, the government, in October 2022, announced its desire to ‘restructure its record N20 trillion debt of the Central Bank bonds’. That ought to have served as a wake-up call for the Legislative Arm. Going by the penchant of the Buhari administration to keep borrowing both from within and from without, one is tempted to wonder what the relevant Committees (in charge of the CBN) of the National Assembly have been doing.”
He added that this near N23.7 trillion loan repayable in 40 years – long after this administration, in fact this generation – would have gone; including the recent $800 million loan from the World Bank, portray the outgoing government of President Buhari as the most debt-piling, if not the most profligate, administration in Nigeria’s history”.
He regretted that the socio-economic situation on ground, including the high cost of living in the land does not justify the unprecedented loans.
He concluded by saying that it is not too late to rein in this penchant for accumulating debts. “No more approval should be given. Too much burden is being prepared for the incoming administration and those that will follow. It is unfortunate.”
Olatunji said: ‘’This is not actually the time to be seeking for such when the administration is already winding down even though the funds had been received through W&M advances. However, it’s more terrible because the funds had been spent without any impact on the economy.
The populace is even poorer and the inflation rate still remains at double digits.”
The NANS Coordinator said: “It is very wrong. He is handing over in less than a month. Buhari should concentrate on handing over to the incoming government. Is he not tired of borrowing? Does he want to sell Nigeria as a country before he leaves? He should just pack his load and leave Nigeria’s treasury.’’
On his part, a financial expert, Uche Uwaleke, says the securitisation of the CBN’s N22.7 trillion Ways and Means Advances will afford the Federal Government a ‘breather’ in terms of debt service burden.
Uwaleke, a Professor of Capital Market at the Nasarawa State University, Keffi said this is 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.
“In respect of the securitisation of the Ways and Means, the government debt restructuring arrangement affords it a breather in terms of debt service burden.
“Similarly, the cost of annual debt service will reduce given the concessional rate of nine per cent as against the current 20.5 per cent 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,” he said.
Uwaleke said that it was 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 was no longer there.
“There is 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.
“Securitisation would entail including it as part of the country’s public debt which makes for transparency” he said.
He said that, henceforth, adequate safeguards should be put in place to ensure that CBN’s Ways and Means were 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 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.
Similarly, the Director General of Nigeria Employers Consultative Association, Wale Oyerinde, questioned the borrowing, which he said was dragging the economy.
He said, “Our view is this, why are we borrowing again a few days before the expiration of the current administration? What the government should focus more on now is to put a closure to most of the ongoing projects and not borrow again for the incoming government to inherit. Whatever project is not completed at this time, those projects should be part of the handover. And this extended way and means of the CBN are just dragging the economy. The loan is not necessary at this point. All attention should be focused on proper handing over so that the next government can start on a good note. We believe that all loans should stop until the incoming government takes over, that is our view, it is not necessary.”
Also speaking, a facilitator with the Nigeria Economic Summit Group, Ikenna Nwaosu, said, “I don’t know why they did what they did, they didn’t give their reasons. I know there has been opposition to that from the private sector; the organised private sector has not been in support of this because it is putting us more into debt. This is towards the end of the President Muhammadu Buhari’s administration. So I can only sit here and wonder. What is the reason given by the National Assembly for passing that, what are their reasons.”
On his part, a professor of economics, Sherifdeen Tella, berated the Senate for approving the ways and means request without sanctions and warnings adding that it further proves notions of being a rubber stamp assembly.
He said, “The Senate should have sanctioned the Ministry of Finance and the CBN for it because once they start approving, other governments will do the same in the future and even more. It is a legal means of borrowing but it is supposed to be the last resort. It is quite unfortunate that the Senate just approved it like that without warnings and sanctions. It shows they are just rubber-stamping legislature.”
He further warned the incoming administration against this line of action.
“What they should do is stick to the limit because this government has misused that opportunity. Other governments may do the same in the future which is not good enough because ways and means create inflationary pressure on the economy.
“For the incoming administration, it allows them to do the same and worst things which are not good enough for the economy itself. This is unfortunate.”
Also, an economist, Akpan Ekpo, described the situation as “unfortunate” noting, “There is a rule that ways and means should not exceed 5 percent of previous revenue. To approve that amount in trillions is very unfortunate and I hope it doesn’t encourage future happenings because it has increased our debt which is becoming very disturbing now. We also don’t have enough revenue to match the debt. They must ensure the Central Bank doesn’t do this again. It is not a welcome development.
“Debt is a generational matter and it is not a good thing. Don’t be surprised the incoming administration will borrow too. I just hope a time won’t come when we are unable to service our debts.”
The Chief Executive Officer, Centre for the Promotion of Private Enterprise, Muda Yusuf, described the approval as unusual, adding that the total public debt may hit N80trn by the end of 2023.
He said, “This is an unusual approval. The National Assembly was confronted with a fait accompli. Constitutionally, the National Assembly is empowered to appropriate funds before it is spent. But we are dealing with a situation where the monies have been spent before approval is sought. It is really an unusual situation and an aberration, it is a bad precedent.
“The event that led to this situation was a breach of the constitution and a flagrant violation of the CBN Act. It is necessary to officially indict agencies of the government involved in these infractions. It is important for state actors to operate within the law at all times. Meanwhile, the public debt levels would be close to N80trn by the end of this year. The incoming administration would have to brace up for the challenges of managing this huge debt.”
A Professor of Management and Accounting at Lead City University, Ibadan, Godwin Oyedokun, also criticized the government for its penchant for borrowing.
He said, “This is not the first time they are getting approval for Ways and Means and we have said that naturally, it is adding to their debt profile which some of us have frowned at. If you look at this regime, all they have done is borrow and the implication of this is that they are borrowing for the next generation to pay.
“It is not as if that when they borrow, we are seeing the effect or impact of what they are borrowing for. With this, it means that the next government is inheriting debt. The debt that they are inheriting, it is the next generation who will pay for it. The future income we are going to generate, somebody already mortgaged it for us to use to pay the debt.
“There is nothing bad in borrowing, it is only when you borrow without sense. Who is bearing the brunt of this borrowing? That is my grouse with this borrowing strategy.”
The People’s Democratic Party also chided the Nigerian Senate for approving a whopping sum of N22.7tn extra-budgetary spending.
Director of Publicity of the PDP, Chinwe Nnorom said having almost exhausted his tenure, Buhari had nothing more to do than to create more confusion.
On his part, spokesperson for the New Nigeria Peoples Party Presidential Campaign Council in the 2023 election, Ladipo Johnson expressed shock at the development.
He said, “We are shocked at this latest insensitivity by lawmakers who are representatives of the people. What the hell does a government that has a few weeks to round off need such a huge amount of money for,” he asked.
“This is an unusual approval. The National Assembly was confronted with a fait accompli. Constitutionally, the National Assembly is empowered to appropriate funds before it is spent. But we are dealing with a situation where the monies have been spent before approval is sought. It is really an unusual situation and an aberration, it is a bad precedent”
Securitisation of N22.7trn advances will improve transparency -DMO
However, the Debt Management Office has said that the securitisation of CBN’s N22.7 trillion “Ways and Means Advances’’ to the Federal Government will improve debt transparency.
DMO’s Director-General, Mrs. Patience Oniha, explained in Abuja on Friday that securitisation would allow the inclusion of the “Ways and Means Advances’’ in public debt statistics.
“It will reduce the debt service cost as the new interest rate is 9 per cent per annum while the Monetary Policy Rate of the CBN is 21 per cent per annum.
“The large savings arising from the much lower interest rate will help to reduce budget deficits and expectedly, the level of new borrowings,’’ she explained.
She stated also that provision for interest in the securitised “Ways and Means Advances’’ starting from 2023, and the principal payment, starting from four years ahead, would be made in the Federal Government annual budgets.
She explained that the securitisation did not involve new loans.
“The CBN had already provided the funds to the Federal Government.
“Based on statutory provisions, the approval of the Senate and the House of Representatives are required for securitisation.
“Implementation will be upon receipt of the approval of the House of Representatives,’’ Oniha stressed.
After securitisation, the “Ways and Means Advances’’ will run for a tenor of 40 years with three years moratorium for the principal only and repayment amortisation of more than 37 years.
