Nigeria to Convert Vast Central Bank Loans to 40-Year Bonds

Nigeria’s government plans to convert at least 20 trillion naira ($45.4 billion) of loans taken from the central bank to 40-year bonds, the first time it’s resorted to such a move as public finances come under pressure.

President Muhammadu Buhari approved the plan to convert the debt, which has mostly been taken on since he was elected in 2015 to plug spending shortfalls after revenue collapsed on lower oil prices and production. It’s the most the government of Africa’s biggest economy has borrowed from the bank.

“It is a one-time restructuring repayable over 40 years with a moratorium,” Patience Oniha, head of the country’s debt management office, said in a text message. The timing of the conversion will be announced after the government seeks approval from the cabinet and lawmakers later this year, Oniha said.

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The International Monetary Fund and the World Bank have said the government practice of using central-bank financing undermines confidence and hampers investment. The IMF in February urged the government to reduce its dependence on the funding.

The central bank loans, which totaled 20 trillion naira as of March, aren’t included in the country’s debt stock of 42.8 trillion naira as of June. Oniha said in February 2021 that the government would convert what was then $25 billion of central bank loans to 30-year bonds, though that plan was never approved.

The government owed the central bank 20 trillion naira as of March, according to a report by the budget office published in August. That amount may increase, after Finance Minister Zainab Ahmed said Wednesday that the government borrowed 5.33 trillion naira from January to August, including loans from the central bank, to partly fund this year’s budget deficit. She didn’t disclose what portion came from the bank.

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Ahmed expects the country’s total debt stock to increase to about 35% of gross domestic product from 23% after the central bank loans are converted, she said at a briefing in the capital, Abuja.

Debt-service payments consumed 83% of the West African country’s revenue in the year through August. Ahmed said the country plans to reduce the burden to 50% of revenue in the medium-term and eventually to 30% in the long-term by boosting government income.

Bloomberg report

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