Credit to the Nigerian economy surged to unprecedented levels in November 2022, reaching an all-time high of N64.22 trillion.
This represents an increase of 1.16% compared to N63.48 trillion recorded as of the previous month.
On a year-to-date basis, the total credit to the Nigerian economy (government and private sector) rose by a massive N15.48 trillion between January and November 2022.
This is according to data released by the Central Bank of Nigeria (CBN) and tracked by Nairalytics – the research arm of Nairametrics.
- As of November 2022, credit to the government stood at N22.64 trillion while credit to the private sector was N41.58 trillion, representing 35% and 65% of the total credit to the economy, respectively.
- Meanwhile, a further look at the data showed that the increase in aggregate credit was largely driven by government credit.
- Specifically, credit to the government increased by N8.79 trillion in the review period, from N13.84 trillion recorded as of December 2021 to N22.64 trillion, which represents a 63.6% increase in eleven months.
- On the other hand, credit to the private sector increased by N6.66 trillion between January and November 2022 to stand at N41.58 trillion, a 19.1% increase year to date.
Credit surge: The Nigerian economy has witnessed a massive surge in its credit in the past three years, on the back of the low-interest rate environment following the covid-induced recession in 2020, as seen in the chart below.
- According to the CBN, the Nigerian economy was able to recover from the economic contraction at a faster pace due to the intervention of credit into the economy, which ensured that the nation recorded growth after only two consecutive GDP declines.
- On the flip side, these interventions as in recent times been viewed as a major bane to the Nigerian economy, triggering a 17-year high inflation rate of over 21% as the broad money supply touched levels not seen in the history of the country.
- In response, the CBN has adopted a tightening monetary stance, increasing the monetary policy rate by 500 basis points to 16.5% in a bid to reduce currency liquidity in the economy.
Government loans drive credit growth: Credit to the public sector, which comprises loans to the federal and state governments has surged by over 63% year to date, contributing about 57% to the total new net loans recorded in the review period.
- The increase in net loans in the Nigerian economy is particularly interesting considering that the CBN is trying to mop up liquidity by discouraging credit with higher interest rates. Comparing the N15.46 trillion increase to previous years, Nigeria’s loan facility to the economy has surged significantly.
- For example, in the whole of 2021, aggregate loans grew by N7.38 trillion, in 2020 loans increased by N5.2 trillion, while in 2019 loans to the economy surged by N7.53 trillion.
- Meanwhile, it is worth noting that the increase in the government credit line is a result of its revenue underperformance, necessitating the incurring of debt securities both from local and foreign sources.
- Nigeria’s central bank data also confirms over N22 trillion has been extended to the government as Ways and Means of lending.
Why this matters: Credit to the domestic economy plays a significant role in the growth of the economy in that it helps spur growth in economic activities in the real sector.
- According to the apex bank’s November 2022 MPC communique, the policies of the bank have helped ensure a sustained positive trajectory for the economy.
- “The economy has thus, sustained positive output growth for seven consecutive quarters, following the exit from recession in 2020. The consistent positive performance recorded was driven largely by the positive growth in the non-oil sector, particularly in the services and agricultural sub-sectors, complemented by continued policy support by the Bank,” the bank stated.
- On the flip side, the increased funding in circulation is also believed to contribute to inflationary pressure such as is witnessed in the country. Hence, it is important to track credit to the public and private sectors.
