The Federal Government is facing challenges redeeming promissory notes and other debt obligations maturing as the Central Bank of Nigeria (CBN) declines overdraft requests.
According to our sources, some of the promissory notes imminently due for payment could face potential default if the Federal Government does not find ways to meet the obligations.
The sources added that the CBN governor, Yemi Cardoso, told government officials that the apex bank will not be extending any overdraft to the government as that would mean increasing Ways and Means Advances.
The implication is that if the government fails to generate enough revenue for this debt, there is a likelihood that it may default on paying the promissory notes.
Other sources opine the option for the government agencies on the receiving end of the loans will be to set off some of their investment securities held with the apex bank against the loans that are fallen due.
- The Federal Government has been depending on borrowing from the apex bank through the Ways and Means Advances to settle its promissory notes debt.
- This was earlier confirmed by President Bola Tinubu, who highlighted the Federal Government’s efforts to diversify approaches and reduce dependence on Ways and Means Advances for domestic debt servicing.
FG to settle at least N283.5 billion promissory notes in 2024
According to data from the Debt Management Office in a document titled, Schedule of promissory notes issued by category as of September 2022 the Federal Government is expected to settle at least N283.5 billion promissory notes this year.
However, this may be higher as the DMO has not updated this payment schedule with recently issued promissory notes.
Further findings from the CBN Half-year 2023 economic report confirmed that there was a 47.2% increase in the amount of promissory notes issued within six months.
The report read:
- “FGN Promissory Notes valued at ₦304.17 billion were issued in the review period. The outstanding stock of the Notes at the end of June 2023 stood at ₦780.04 billion, representing an increase of 47.2 percent, compared with ₦530.03 billion at the end of December 2022.”
- “The increase was attributed to the payment of incentives to exporters under the Export Expansion Grant (EEG) scheme.”
Also, the latest debt report for the third quarter of 2023 by the DMO shows that Nigeria currently has N1.48 trillion promissory notes, making up 2.95% of the country’s total domestic debt of N50.2 trillion. This means there was an increase of 89.6% between June 2023 and September 2023.
A DMO document further showed that the Federal Government is expected to make payments to exporters, state governments, and oil marketing companies, alongside settling a dollar-denominated judgment debt in 2024.
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A promissory note is a debt instrument that contains a written promise by one party (the note’s issuer or maker) to pay another party (the note’s payee) a definite sum of money, either on demand or at a specified future date.
The Director-General of the DMO, Ms Patience Oniha, recently said promissory notes, budget deficit and constant borrowing had led to an increase in public debt.
- Among other reasons, she said, “the government has been issuing promissory notes to settle obligations, for which it doesn’t have the revenue or cash. That is why the debt stock has been growing.”
- Nairametrics earlier reported that the Federal Government of Nigeria tapped into the CBN for a substantial N2.94 trillion through Ways and Means Advances between July and December 2023.
- With the recent restructuring of the outstanding balance on the Ways and Means Advances from the CBN, Nigeria’s domestic debt is expected to surpass N57.5 trillion.
- The Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun recently said that the president will adhere to statutory limits when seeking budget support facilities from the CBN through the Ways and Means Advances, adding that the federal budget cannot be sustained this means of financing.
This story was updated to reflect new information.
