The Central Bank of Nigeria (CBN) has reported a significant increase in credit to the Federal Government, which rose by N11.33 trillion, or 57.11%, reaching a total of N31.15 trillion in August. This surge followed a sharp rise from N19.83 trillion in July. The Money and Credit Statistics from the CBN indicate that borrowing trends across the three tiers of government have been inconsistent over recent months. For instance, credit levels fluctuated when measured month-to-month; June recorded N23.93 trillion, reflecting an increase from N19.98 trillion in April but showing a decline from N28.38 trillion in May. The first quarter of 2024 further displayed these variations, with January’s figure at N23.52 trillion, peaking in February at N33.93 trillion, but then dropping to N19.59 trillion in March. These trends signal the increasing dependence of the Federal Government on CBN credit facilities to meet its spending commitments.
The escalating borrowing trend raises pressing concerns among economic analysts regarding the sustainability of such fiscal practices. Continuous reliance on central bank funding to support capital projects and debt servicing is perceived as potentially detrimental to the broader economy, possibly resulting in heightened inflationary pressures. Additionally, the report highlighted a decrease in private sector credit, which fell by N777.13 billion or 1.03%, settling at N74.73 trillion in August from N75.51 trillion in July. The private sector previously experienced fluctuating credit levels as well, starting from N76.48 trillion in January, reaching a peak of N80.86 trillion in February, before declining to N71.21 trillion in March. While there was slight recovery in subsequent months, reaching N72.92 trillion in April, N74.31 trillion in May, and N73.19 trillion in June, the overall trend illustrates a crowded private credit market.
In terms of currency circulation, there was a notable increase as well, with the total currency rising to N4.14 trillion in August, an increase of N91.08 billion or 2.25% from July’s N4.05 trillion. When combining total credit to both the government and the private sector, along with the currency in circulation, a cumulative total of N110.03 trillion was recorded in August. This aggregate highlights the ongoing monetary and fiscal dynamics affecting the Nigerian economy, with government borrowing clearly dominating credit activities and overshadowing the private sector’s financial maneuverability.
Afrinvest research emphasized the precarious position of the CBN as it navigates the challenges of controlling inflation while simultaneously stimulating economic growth. In response to prevailing economic conditions, the CBN’s Monetary Policy Committee raised the monetary policy rate by 50 basis points to 27.25%, marking the fifth consecutive increase within the year. Moreover, the cash reserve ratio for commercial banks increased to 50%, while merchant banks saw an adjustment to 16%. These policy changes are viewed as attempts to manage excess liquidity and stabilize the Nigerian exchange rate. However, Afrinvest cautioned that while such policies may aid in curbing inflation, they could inadvertently tighten private sector liquidity further and raise borrowing costs. This potential outcome could slow economic growth, revealing the delicate balance the CBN must maintain in formulating effective fiscal policies.
In light of these developments, analysts have stressed the need for a more balanced approach to Nigeria’s fiscal management. There is a growing consensus that stimulating private sector activity should be prioritized to achieve sustainable economic development. The government’s reliance on borrowing could crowd out essential private investments unless mitigated by approaches that integrate private sector growth into broader economic strategies. Furthermore, the dynamics affecting public debt in Nigeria indicate a concerning trend. The Debt Management Office recently reported figures showing that total public debt had surged to N121.67 trillion by June 2024, reflecting a 24.99% increase from N97.34 trillion recorded in December 2023. This significant overhang in debt—comprising both domestic and external obligations from the Federal Government, all 36 state governments, and the Federal Capital Territory—paints a sobering picture of Nigeria’s fiscal landscape.
In conclusion, the increasing reliance of the Nigerian government on borrowing from the CBN raises essential questions about the long-term viability of such financial strategies. As credit to the Federal Government swells to unprecedented levels, concerns surrounding economic sustainability, inflation, and the health of the private sector continue to mount. The CBN’s recent monetary policy adjustments, while aimed at addressing inflation and liquidity issues, pose significant risks to private sector growth, amplifying the necessity for a more balanced fiscal approach. As public debt reaches alarming levels, the urgency for reforms that invigorate the private sector and promote sustainable economic policies becomes clear. The Nigerian economic landscape requires careful navigation to foster an environment conducive to growth while managing the challenges arising from substantial government borrowing and rising public debt.
