The Nigerian government plans to convert its CBN loans to 40 years bond

By: Damian Okonkwo

The Federal government of Nigeria has disclosed its plans to convert over 20 trillion naira ($45.4 billion) of the loans it has acquired previously from the CBN into a 40-years bond. This decision to convert the acquired loans into bonds will further assure investors that the borrowed money was not newly printed money added to the circulating amount of the Naira but rather a moratorium taken by the Federal government and to be repaid over time.

This present move seems necessary to restore investors' confidence in the economy, especially after the International Monetary Fund and the World Bank had condemned the government practices of using the central banks to finance its projects as it undermines investors' confidence in the economy. Hence, it urged the government authorities to reduce its dependency on the central banks and seek other alternatives for financing its projects.

The current conversion of the government loan into a bond will further increase the country's debt stock to 35% against the 25% seen previously in the GDP from June.

Speaking on this development, the Nigerian Debt Management head Officer - Patience Oniha revealed that the present loan obtained from the CBN is a repayable loan over after 40 years and that time of its conversion will be announced after the lawmakers have given approval.

It is important to note here that the present 20 trillion loan which the FG had obtained from the CBN was not previously included in the country's current debt records disclosed as 42.8 trillion in GDP in June.

Nigeria despite being the giant of Africa and blessed with rich natural resources has been barely able to raise enough revenue from its natural resources to cover its debts annually.

In 2021 for instance, total government income of 1.63 trillion Naira during the first four months was barely sufficient to cover its debt of over 1.94 trillion Naira as disclosed by the finance minister. This inability to clear the outstanding debts appears to be the major reason why the FG seems to be resorting to borrowing from its central banks rather than continuing borrowing from international banks.

However, a major disadvantage of borrowing from the CBN is that it dissuades investors especially when these loans are not added to the nation's debts. In this case, it becomes newly printed money which devalues the currency and increases the inflation rate.