Nigerian Govt makes progress on securitising CBN loans

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The Debt Management Office (DMO) has announced significant progress in its efforts to securitize outstanding Ways and Means advances from the Central Bank of Nigeria (CBN).

Director-General Patience Oniha, on Monday, revealed that the DMO has successfully raised N4.9 trillion out of the N7.3 trillion approved by the Senate in December 2023.

Oniha said this in Lagos at an interactive session with primary dealers in the Federal Government securities market, according to the News Agency of Nigeria.

In December 2023, the Senate approved the securitisation of the outstanding N7.3tn Ways and Means requested by President Bola Tinubu.

The Ways and Means provision allows the government to borrow from the Central Bank if it needs short-term or emergency finance to fund delayed government expected cash receipts of fiscal deficits.

Speaking on Monday, Oniha said, “Out of the new domestic borrowing of N6tnwe have raised N4.5tn. For the Ways and Means, out of N7tn approved for securitisation, we have raised N4.91tn.”

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She added that the Nigerian domestic securities market remains a major source of funding for the Federal Government.

According to Oniha, during COVID-19, when the international markets were closed, the government was able to raise the full amount needed to fund the budget.

“Last year, we raised N7tn as new domestic borrowing. It speaks to the size of the domestic market, its resilience, and its sophistication, unlike (what) we have in many African markets,’’ she said.

Oniha said that the 2024 budget had a deficit of N6tn to be financed through new domestic borrowing.

What is Ways and Means Securitisation?

Ways and Means refers to a provision allowing the government to borrow short-term funds from the CBN to address temporary cash flow shortfalls. Securitization essentially transforms this short-term debt into tradable financial instruments with a longer maturity.

Benefits of Securitisation:

• Improved Transparency: Previously, these advances were not reflected in official public debt figures. Securitization brings them onto the books, providing a clearer picture of the government’s overall indebtedness.
• Reduced Debt Service Costs: The securitized debt comes with a lower interest rate (reportedly 9%) compared to the previous rate charged by the CBN. This frees up government resources for other priorities.

Unresolved Issues:

• Source of Remaining Funds: While N4.9 trillion has been raised, it remains unclear how the DMO plans to bridge the N2.4 trillion gap to reach the N7.3 trillion target.
• Market Impact: The DMO’s borrowing activities can influence domestic interest rates. Continued issuance of government debt could potentially crowd out borrowing by businesses, impacting economic growth.

The DMO’s success in raising a substantial portion of the targeted funds indicates progress on this critical initiative. However, questions remain regarding the source of remaining funds and the broader economic impact. As the DMO moves forward, close attention will be paid to its strategy for completing the securitization and the long-term management of Nigeria’s public debt.