CBN Reports Soaring Government Borrowing as Private Sector Credit Declines

The Central Bank of Nigeria (CBN) has revealed that credit to the Federal Government surged by N11.33tn in August 2024, marking a 57.11% increase from N19.83tn in July to N31.15tn. The latest Money and Credit Statistics from the CBN show fluctuating borrowing patterns across Nigeria’s three tiers of government, reflecting the Federal Government’s growing dependence on credit facilities to finance capital projects and service its mounting debt obligations.

The data traces a volatile borrowing trend in recent months. In June, government credit stood at N23.93tn, a notable rise from N19.98tn in April, though it dipped slightly from the N28.38tn reported in May. Similarly, the first quarter of the year recorded erratic borrowing levels, with January seeing N23.52tn in credit, peaking sharply at N33.93tn in February, before a significant drop to N19.59tn by March.

This steady uptick in government borrowing has sparked concerns among economists and analysts, who warn that the Federal Government’s increasing reliance on CBN facilities could strain the nation’s economy, exacerbating inflationary pressures while crowding out the private sector.

The report also highlighted a contraction in private sector credit, which fell by N777.13bn (1.03%) in August to N74.73tn, down from N75.51tn in July. Private sector credit had fluctuated earlier in the year, rising to N80.86tn in February before dropping to N71.21tn in March, followed by modest recoveries in subsequent months, reaching N74.31tn in May.

In addition to the credit figures, the CBN report noted an increase in currency circulation, which climbed by N91.08bn (2.25%) in August, bringing the total to N4.14tn, up from N4.05tn in July. Combined, the government and private sector credit, along with money in circulation, totalled N110.03tn in August, underscoring the complex fiscal and monetary dynamics shaping Nigeria’s economic landscape.

Government borrowing continues to dominate credit activities, further constricting liquidity available to the private sector, a scenario that has prompted warnings from financial experts. Afrinvest, a prominent research firm, cautioned that the CBN faces an uphill battle in attempting to balance inflation control with efforts to stimulate economic growth.

“The CBN is in a difficult position, as its policies aimed at controlling inflation may also risk tightening liquidity in the private sector and increasing borrowing costs, potentially slowing down economic growth,” Afrinvest stated.

To rein in inflation, the Monetary Policy Committee (MPC) of the CBN recently raised the benchmark monetary policy rate by 50 basis points to 27.25%, marking the fifth consecutive rate hike this year. In addition, the cash reserve ratio for commercial banks was raised to 50%, while that of merchant banks was increased to 16%. These moves are part of the CBN’s efforts to curb excess liquidity and stabilise the naira’s exchange rate, but they come with potential downsides for private sector growth.

“While these policies may help in controlling inflation, they could lead to tighter liquidity in the private sector, thus increasing borrowing costs and dampening economic activity,” Afrinvest added, calling for a more balanced fiscal approach to stimulate sustainable economic growth.

Adding to the economic strain, Nigeria’s total public debt stood at a staggering N121.67tn in June 2024, a 24.99% increase from the N97.34tn recorded just six months earlier in December 2023. The Debt Management Office (DMO) confirmed that this figure includes both domestic and external debt obligations of the Federal Government, the 36 states, and the Federal Capital Territory.

As the Federal Government’s borrowing spree continues, analysts stress the need for stronger fiscal discipline and a greater focus on stimulating private sector activity to ensure long-term economic stability. With inflation still a pressing issue and debt levels rising, the CBN’s ability to navigate these challenges will be crucial for Nigeria’s economic future.