Nigeria will convert its N20 trillion loan owed to CBN to 40-Year Bonds

Nigeria, whose public finances are under strain, aims to convert at least 20 trillion naira ($45.4 billion) in loans obtained from the central bank into 40-year bonds. This is the first time the country has used this strategy.

The idea to convert the loans, which have largely been taken after President Muhammadu Buhari was elected in 2015 to fill budget gaps after earnings dropped due to falling oil prices and production, has been approved by the president. The largest economy in Africa has never borrowed as much money from a bank.

After the government disclosed that it had borrowed 5.33 trillion naira as of August, including from the bank, to partially fund this year’s budget deficit, finance minister Zainab Ahmed said in a briefing in Abuja, the nation’s capital, on Wednesday, the amount owed the central bank may increase above the 20 trillion naira March balance.

Ahmed withheld information about how much of the new borrowing was provided by the central bank. After the central bank loans are converted, she anticipates that the country’s total debt will rise from 23% of GDP to approximately 35%.

In the year to August, debt servicing payments accounted for 83% of the nation’s income.
Nigeria announced last week that it intended to switch loans from short- to medium- and longer-terms in order to reduce the strain brought on by growing debt prices, inflation, and a stronger dollar. According to a government official, Nigeria intends to convert at least 20 trillion naira ($45.4 billion) in loans received from the central bank into 40-year bonds.

The idea to convert the loans, which have largely been taken after President Muhammadu Buhari was elected in 2015 to fill budget gaps after earnings dropped due to falling oil prices and production, has been approved by the president. If the cabinet and legislature approve this year, it will be the largest bank loan that Africa’s largest economy has ever taken out and the first time that such loans have been converted into bonds.

In the year to August, debt servicing payments accounted for 83% of the nation’s income. By increasing government revenue, according to Ahmed, the nation intends to lower the burden to 50% of revenues in the medium term and ultimately to 30% in the long run.

Nigeria announced last week that it intended to switch loans from short- to medium- and longer-terms in order to reduce the strain brought on by growing debt prices, inflation, and a stronger dollar.