The Central Bank of Nigeria (CBN) has reported a significant increase in credit to the Federal Government, rising by N11.33 trillion or 57.11% to N31.15 trillion in August, up from N19.83 trillion in July.
This surge underscores the government’s escalating reliance on borrowing to fund capital projects, debt servicing, and other fiscal responsibilities.
The CBN’s latest Money and Credit Statistics reveal a fluctuating borrowing trend by all three tiers of government over recent months. For instance, in June, credit was reported at N23.93 trillion, up from N19.98 trillion in April but down from N28.38 trillion in May.
This pattern raises concerns among economic analysts regarding the long-term sustainability of such borrowing practices, which could exacerbate economic strain and inflationary pressures.
In contrast, credit to the private sector saw a decline of N777.13 billion or 1.03%, settling at N74.73 trillion in August compared to N75.51 trillion in July. Earlier in the year, private sector credit peaked at N80.86 trillion in February before experiencing a drop to N71.21 trillion in March. Since then, it has shown modest growth, fluctuating around the mid-seventies range.
In terms of currency in circulation, the total rose to N4.14 trillion in August, reflecting a N91.08 billion or 2.25% increase from July. Combined, government and private sector credit, along with currency in circulation, reached N110.03 trillion in August, indicating that government borrowing is increasingly dominating credit activities and potentially crowding out the private sector.
Afrinvest research emphasizes the CBN’s challenging position in balancing inflation control with economic growth stimulation. The Monetary Policy Committee recently raised the monetary policy rate by 50 basis points to 27.25%, marking the fifth consecutive hike this year.
Additionally, the cash reserve ratio for commercial banks was increased to 50% and for merchant banks to 16%, measures aimed at curbing excess liquidity and stabilizing the exchange rate.
While these policy changes may help control inflation, Afrinvest warns they could further tighten liquidity in the private sector and increase borrowing costs, potentially slowing economic growth. The firm advocates for a more balanced fiscal management approach that stimulates private sector activity to ensure sustainable economic development.
Further compounding these issues, Nigeria’s total public debt has surged to N121.67 trillion as of June 2024, a 24.99% increase from N97.34 trillion recorded in December 2023. This figure encompasses both domestic and external debts across the Federal Government, the 36 state governments, and the Federal Capital Territory.
In the first quarter of 2024, borrowing levels displayed considerable variation, with credit peaking at N33.93 trillion in February before dropping to N19.59 trillion in March.
As the economic landscape evolves, the interplay between government borrowing, private sector credit, and monetary policy will remain crucial in shaping Nigeria’s fiscal future.
