Nigeria: CBN Analyst – Cut Federal Government Loans Amid Rising Debts
The Central Bank of Nigeria (CBN) has been urged to reduce its lending to the federal government to curb the country’s spending spree and reduce the country’s growing debt burden.
The founder of Agusto & Co, a rating agency for financial services institutions, Mr. Bode Agusto, noted that the CBN taking such a stance will force the government to live within its means.
Agusto, who made the call during a webinar to commemorate the institution’s 30th anniversary, titled “Nigeria in 2022: Will 2022 be a year of strong growth driven by herd immunity against Covid-19 said the CBN has been a catalyst for government spending, and therefore urged the apex bank to cap its support for the government.
“First of all, we have to consider that the country is bigger than any government. Let’s consider that we have to save our country. Because if we don’t save our country, we will have problems. The central bank must be able to adopt a position that will force the government to live within its means.
“It’s going to force tough reforms on governments because what we’re doing today is giving governments an easy way to cut spending. If only we had a central bank that says the law says I don’t cannot give you the overdraft of more than 15% of the turnover of the previous year.
“Therefore, if the tap is turned off, the government will look inwards and look for ways to cut spending. It will manage its resources better. The government will be forced to tap more ways to increase its tax revenue. But if you just open the tab and let them draw, the discipline will not be there and the more we increase the debt, the harder it will be to resolve the issue along the way,” he pointed out.
On the 2022 outlook for the country, he said, “We believe COVID-19 will stay with us, but it will be less deadly and less disruptive to business activities.
crude oil will reach 100 million barrels per day, demand for crude from OPEC+ will also increase slightly and quota compliance will remain important. If the members are in compliance. The price of Brent could average around $75 a barrel. Brent’s price is about the same as Bonny’s. Light, which is the benchmark crude for Nigeria.
“The amount of dollars available for imports will be approximately $90 billion out of all imports will be approximately $11 billion, the remaining $79 will finance imports of goods and services, the CBN can bleed reserves and adding another $5 billion to increase the amount of money available for business, but overall we think the amount of money available for business will improve.”
He added that the dual exchange rate in the country will continue and the CBN will use it to improve oil and gas revenues or maybe some of the external reserves to shore up. We estimate it will close at around N430 to $1 where we see continued pressure on parallel market exchange rates unless the CBN injects money into the parallel market we will close at N610 to N620 to the dollar at the end of this year.
He said that “the federation’s accounts are expected to grow by around 15%. Most of the growth we have announced will come from VAT and corporate income tax. The federal government’s share of these income and self-employed would be around 5 trillion naira and this is our most aggressive estimate FGN’s local currency debts will reach around 44 trillion naira, about nine times its income The median of major countries in Africa sub-Saharan is about double.
“Due to the high cost of servicing these debts at commercial rates, the CBN will continue to accommodate the FGN by lending to it at rates below inflation, thereby reducing the borrowing needs of the FGN in the markets and exerting a downward pressure on interest rates as banks, pension funds, insurance companies and other institutional investors compete for government securities.
“Banking sector local currency lending will grow by around 10% in nominal terms, but growth will remain negative after adjusting for inflation. Lending growth will continue to be constrained by cash reserve requirements Profitability in the banking sector will remain weak due to a high level on non-profit cash reserves, the continuation of the AMCON levy beyond the originally agreed ten years and a higher effective tax rate.”