The Securitization of Nigeria’s Ways and Means loans, which are presently valued at roughly N22.7 trillion, has been authorized by the National Assembly, clearing the way for the contentious debt law.
The Ways and Means section refers to a clause that enables the government to borrow money from the Central Bank of Nigeria (CBN) in an emergency or short-term situation to cover budgetary shortfalls or delays in projected government cash receipts.
The Buhari administration has exceeded a provision in the statute that limits monetary financing of fiscal deficits to 5% of the preceding year’s revenues. The Buhari administration submitted a bill to the national legislature to ratify the conversion of the loan into a national debt in order to legitimize the breach.
Conditions of Securitization
According to the most recent statistics from the Debt Management Office, the tenor of the Securitization is a phenomenal forty (40) years, with a three-year moratorium on the principle and an interest rate of 9% per year.
forty (40) years in duration
Three (3) year moratorium (on principal alone)
Interest rate: 9% per year.
Repayment: Spreading out over a period of 37 years
The securities’ owner: The Federal Government of Nigeria will issue the Securities to the Central Bank of Nigeria (CBN) (FGN).
The FGN will not offer Securities to the general public in order to raise money.
The debt management agency also outlined the advantages of Securitization and stated its objectives.
The securitized Ways and Means Advances will now be included in the public debt data, increasing debt transparency.
While the new interest rate is 9% per year compared to the Monetary Policy Rate plus 3%, which translates to 20.5%6 per year (MPR – 18.5% + 3%), now levied on the Ways and Means Advances, it will lower the cost of debt service.
The significant cost savings brought on by the significantly reduced interest rate will aid in reducing the budget deficit and, hence, the amount of new borrowings.
It further mentioned that the annual FGN budgets will include allocations for interest on the securitized Ways and Means Loans (beginning in 2023) and principal repayments commencing in year four (4).
New loans will not result from Securitization.
The DMO added that because the FGN had previously received the monies from the CBN, the Securitization of the Ways and Means Advances did not require the FGN to receive any fresh funding.
Vote of the National Assembly
The consent of the Senate and the House of Representatives is necessary for the Securitization to be statutorily approved. As a result, implementation will begin after receiving House of Representatives approval.
The Nigerian State accepted the suggestions to turn the N22.7 trillion Ways and Means loan into a securitization on May 3. The House of Representatives approved securing the loans on Thursday, May 4.
The House of Representatives committee that recommended the bill’s passage went one step further and suggested that the House “approve the proposed extra N1 trillion Ways and Means Advances for executing the 2022 Supplemental Appropriations Act as authorized by the National Assembly.
The Securitization of the outstanding Ways and Means amount was also authorized, with the following conditions: N23,719,703,774,306.90; 40-year duration; 3-year principle repayment moratorium; and 9 per cent annual interest rate.
Nigeria’s public debt now stands at N69 trillion.
The entire public debt will be N69 trillion as of December 2022 if the National Assembly approves the N22.7 trillion Ways and Means, which both houses will likely pass.
How did we come up with this figure? Table below
Total Public Debt of Nigeria as of December 2022
In a previous piece, Nairametrics described how we got to this equilibrium.
Objectors Fire Back
The planned Securitization was seen as startling and dubious by the labour unions in their comments. Nuhu Toro, the general secretary of the TUC, said: “That is absurd and raises questions. This is unnecessary, especially when this administration is about to end. The remaining issue is whether or not governance is a constant endeavour.
The Senate’s approval of such extra-budgetary spending, according to a senior NLC official, “demonstrates the continued gang-up of those in power, notably the President and Legislature, against the masses. Given the dire situation of our economy and the miserable living conditions of the populace, we consequently see this not just with disdain but also with tremendous anxiety.
