The Federal Government has disregarded the Central Bank of Nigeria Act (2007) as it moves to restructure its estimated $25.6 billion (an equivalent of
The Federal Government has disregarded the Central Bank of Nigeria Act (2007) as it moves to restructure its estimated $25.6 billion (an equivalent of N9.7 trillion) overdrafts with the monetary authority into a 30-year debt, TheGuardian is reporting.
The amount, which sources say is unverifiable and could have been discounted following the high level of secrecy around the processes leading to the loans, consists of the existing short-term advances granted by the apex bank.
Government may have, by the facility restructuring, heeded the warning by International Monetary Fund (IMF) and Fitch that the mounting overdrafts were responsible for the accelerating inflation, which hit 16.47 per cent in January.
Like its procurement process, the planned loan liquidation faces major legal hurdles, among which is the CBN Act 2007 that spells out how advances extended to government should be treated as well as repayment processes.
Section 38 of the Act stipulates that the apex bank “may grant temporary advances to the Federal Government in respect of temporary deficiency of budget revenue.” It, however, restricts the amount to five per cent of the previous “year’s actual revenue of the Federal Government.”
The CBN-enabling law also mandates government to offset any advance before the end of the financial year it is granted. Failure to repay, according to the law, the government should be deprived of accessing the window to plug its funding gap.
Godwin Owoh, a professor of applied economics laments that the Federal Government had, in the past few years, disregarded the legal caution, inflicting pains on millions, as inflation ballooned on the wings of blatant abuse of W&M facilities.
The government, it was learnt, has chosen to settle for a long-term debt, as the current fragile fiscal stance does not support an immediate repayment. But experts have warned that converting unearned short-term facility into a long-term debt is suicidal as “the asset is worthless.”
As government defers its responsibility indefinitely — as many do not believe it would be able to pay up even within 30 years — economists have also warned that the securitisation plan, as disclosed by the Debt Management Office (DMO), would put enormous pressure on future generations who are ill-prepared for the demand.
Owoh said, “the arrangement portends moral hazards for DMO” to seek an extension of the repayment of the overdrafts to 30 years. It is worse, the economist said, that Nigerians are subjected to unbearable taxation.
On the way forward, he said, “an economic indemnity should be required of the government, the CBN and DMO that all desirable professional and ethical standards are in place and that all aspects of the transaction pass the utmost good faith test.”
An energy economist and public commentator, Bala Zakka, also described the planned conversion of the short-term funds to long-term facility as the height of irresponsibility.
“While nations like Norway, Saudi Arabia and Qatar are planting seeds of growth and development for their future generations, Nigerian leaders are busy planting the seeds of debts, and slavery for citizens,” Zakka said.
