- Some economists warned that the approval could further increase Nigeria’s debt profile, scare lenders, and lead to difficulty selling bonds to the public at a 9% interest rate over 40 years.
- They also opined that if the funds were used for productive investments like infrastructure, it could have positive long-term effects. But if they were used for consumables, the effects may have already been felt in the ministries.
- The funds were borrowed by the Federal Government from the Central Bank of Nigeria through Ways and Means advances, and the effects on the Nigerian economy will depend on how they were used.
Reactions have continued to trail the decision of the National Assembly to approve the recent conversion to debt of the sum of N22.7 trillion that was spent by the presidency without the initial approval of the legislative arm.
Among those who have condemned the development are some economists who spoke to Nairametrics. They expressed worry about the ways the development could negatively affect the country, including raising the debt profile.
Recall that the controversial funds were borrowed from the Central Bank of Nigeria (CBN) through Ways and Means advances. The development has been a subject of dispute between the executive arm of government and some members of the National Assembly, especially the opposition members.
What the economists think
The Chief Executive of Anthill Concepts Limited, Dr Emeka Okengwu, said the implication is that Nigeria’s debt profile has increased. He also said the effects of the N22.7 trillion on the Nigerian economy would depend on what the Ways and Means funds were used for.
He, however, noted that if the funds were used to build infrastructure or invest in projects that would bring returns, then the effects would be felt in the future. But if the funds were used for consumables, then the effects are already felt in the ministries.
Acquiescing to Okengwu’s position, an economic affairs analyst, Dr Godwin Oputa, said Nigeria would be further indebted, thus choking the country’s ability to service its debt as and when due. He also noted that the additional N22.7 trillion added to the debt profile would scare lenders and increase the cost of borrowing for Nigeria.
Can the economy absorb the debt?
The Chief Executive of the Center for the Promotion of Private Enterprise, Dr Muda Yusuf, said he’s not sure whether the economy can absorb a N22.7 trillion debt. He noted that the books of the CBN will change, and the burden of debt will be transferred to the Debt Management Office.
He also said that with the N22.7 trillion securitized, it will be an opportunity to suck liquidity out of the system since the amount will be transmuted into debt and sold as bonds to the public.
He cautioned that it may be difficult to sell such bonds to the public at 9% over 40 years, considering an inflation rate of 22% annually.
He also questioned the idea of approving the bill considering its unconstitutionality. He said it’s like legitimizing something illegal, stressing that it’s a major breach of the constitution and a major violation of the CBN Act.
Gobir went further to highlight some of the beneficiaries of the funds, including the Office of the Accountant-General of the Federation, the Ministry of Foreign Affairs (ECOWAS National Unit), Nigeria Bulk Electricity Trading, Azura Power West Africa, Niger Delta Power Holding Company, and Accugas Limited.
Little or no difference
On his part, the Chief Executive of Economic Associates, Dr Ayo Teriba, reiterated an earlier sentiment he expressed, noting that the securitized funds would make no difference in the country’s finances. He added that the approval by the Senate was expected.
What you should know
In a letter to the Senate in December 2022, Buhari requested the approval of the upper legislative chamber for N22.7 trillion in ways and means advances.
The ways and means are advances (or funds) from the Central Bank of Nigeria (CBN) to the federal government for emergency funding of delayed receipt of fiscal deficit.
Buhari said in the letter:
- “The ways and means advances by the Central Bank of Nigeria to the federal government have been a funding option for the federal government to cater for short-term or emergency finance to fund delayed government-expected cash receipts for fiscal deficits.
- “The ways and means, balances as of December 19, 2022, is N22.7 trillion.”
This led to a rowdy session in the upper legislative chamber, with the senators who kicked against it, demanding that the records of what the funds were spent on be presented to the senate before it could approve the request.
Following the uproar caused by the request, the senate suspended its consideration, with the senate president, Ahmad Lawan, appointing Gobir to chair an ad hoc committee and liaise with relevant ministries, departments, and agencies (MDAs) on the spending.
Though the Gobir-led panel was meant to have turned in its report in January, it was only able to do so at Wednesday’s sitting.
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