Credit to the Nigerian government surged by ₦11 trillion in August 2024, driven by high interest rates that made government securities more attractive to investors. According to the Central Bank of Nigeria’s (CBN) latest data, government borrowing now constitutes 29.4% of the ₦105.88 trillion in net domestic credit, as the government increasingly turns to local debt to fund its spending.
In contrast, credit to the private sector slightly declined, as businesses dealt with rising debt repayment pressures. This underscores the impact of the CBN’s interest rate hikes, which have increased borrowing costs for companies while making government securities more appealing due to their higher yields.
Key Insights:
– Government credit rose sharply to ₦31.15 trillion in August 2024, compared to ₦19.83 trillion in July, marking a 57.1% increase.
– Over the past year, government borrowing jumped by 38.5%, with ₦22.51 trillion recorded in August 2023, reflecting a growing dependence on debt for public expenditure.
– Private sector credit fell by ₦780 billion in August, dropping to ₦74.73 trillion from ₦75.51 trillion in July, signalling businesses’ struggles with higher borrowing costs.
Interest Rate Hikes and Economic Impact:
Under Governor Yemi Cardoso, the CBN has raised the Monetary Policy Rate (MPR) five times since his appointment, bringing it to 27.25% as of September 2024. These hikes, aimed at controlling inflation, have reshaped Nigeria’s credit landscape, with government securities offering better returns for investors.
However, concerns are growing that prolonged tight monetary policy could stifle economic growth if businesses remain unable to access affordable credit for investment and expansion. Additionally, the rising cost of borrowing for the government may increase debt servicing expenses, potentially diverting funds from critical development projects.
Government Debt Strategy:
The Bola Tinubu administration has relied heavily on Treasury Bills to meet short-term financing needs, a shift from the previous administration’s use of the CBN’s Ways and Means Advances. In the first half of 2024 alone, the CBN incurred ₦1.55 trillion in interest payments for T-Bills auctions, a 654.7% increase compared to the same period in 2023.
The Lagos Chamber of Commerce and Industry (LCCI) warned that the high yields on T-Bills are pulling funds away from private sector investment, while experts, including Aliko Dangote, continue to call for lower interest rates to drive economic growth and support local industries.
Credit: Nairametrics (Text Excluding Headline)
