The Nigeria Government borrowing from its Central Bank hit a record high of N19.6 trillion as at May 2022.
As of the end of 2021, data obtained from the Central Bank of Nigeria (CBN) showed that Way & Means lending to the Nigerian Federal Government stood at N18.4trillion ($43bn). Fast-forward to May 2022, the number had risen to N19.6 trillion ($46bn).
This implies new disbursement of about N1.2 trillion in the first half of 2022. Analysts say that the federal government action is leading to financial repression.
Financial repression is a term that describes measures by which governments channel funds from the private sector to themselves as a form of debt reduction.
The overall policy actions result in the government being able to borrow at extremely low interest rates, obtaining low-cost funding for government expenditures.
“A key risk is financial repression occurs when government funds itself below market rate. Like we saw in the bond space in H1, stop rates were largely subdued despite FGN frontloading borrowing and significant budgetary pressure in the period,” said Daniel Onasanya Research Analyst at Afrinvest West Africa.
“Continued financing of WM would therefore sustain repression of market rates Which deepens negative real return for investors in this high inflation environment.”
Data from the FMDQ shows that one-year Treasury Bills yield 6.3 percent while benchmark 10 year bonds yield about 11.4 percent, well below the May inflation rate of 17.71 percent.
Savers and Investors including, Pension Funds for retirees are therefore making negative returns on their investments.
The size of way & means disbursement over the last five years is way above the benchmark of 5% of prior year revenue stipulated in the CBN Act 2007.
Over the last 5 years, annual Ways & Means support average above N2.1tn, which is more than 40% of prior year revenue.
According to the International Monetary Fund (IMF), policies that promote financial repression may include directed lending to the government by captive domestic audiences (such as pension funds or domestic banks), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between government and banks, either explicitly through public ownership of some of the banks or through heavy “moral suasion.”