Apprehension Grows as FG Borrows N20.1 Trillion Under Tinubu’s Administration

The Federal Government of Nigeria borrowed N20.1 trillion from domestic investors in the first year of President Bola Tinubu’s administration, marking a 117% year-on-year increase. This surge in borrowing has raised concerns about its potential impact on inflation, debt service costs, and borrowing costs for businesses.

The Federal Government raises funds from domestic investors through FGN Bonds, FGN Savings Bonds, Sukuk Bonds, and Nigeria Treasury Bills (NTBs), the latter issued by the Central Bank of Nigeria (CBN) on behalf of the FG.

Data analysis from the Debt Management Office (DMO) and CBN shows that between June 2023 and May 2024, the FG borrowed N20.09 trillion, compared to N9.275 trillion in the previous year. NTBs auctions, which constituted 66% of FG’s domestic borrowing, saw the most significant increase.

Detailed Borrowing Breakdown

• NTBs: FG’s borrowing through NTBs rose by 188% to N13.235 trillion from N4.592 trillion.
• FGN Bonds: Borrowing increased by 42% to N6.476 trillion from N4.537 trillion.
• Sukuk Bonds: Borrowing rose by 169% to N350 billion from N130 billion.
• FGN Savings Bonds: Borrowing spiked by 116% to N29.17 billion from N16.07 billion.

Interest Rate Hike

This sharp increase in borrowing was driven by a high-interest rate regime, with the average Monetary Policy Rate (MPR) rising to 20.32% from 16.21%. Consequently, the average interest rate on NTBs increased to 9.1%, while the rate on FGN Savings Bonds rose to 17.91%.

Analysts’ Concerns

Analysts express concern that the sharp rise in borrowing could negatively impact the private sector by making it more costly for businesses to borrow. Nnamdi Nwizu of Comercio Partners noted that increased government spending might fuel inflation and further pressure interest rates. Tunde Abidoye of FBN Securities highlighted the potential for increased inflationary pressures and a crowding-out effect on private sector lending.

However, Chinazom Izuorah of an Investment Brokerage differed, stating that the increased value of borrowing was due to higher MPR and resultant interest rates on government securities, which could help reduce liquidity and control inflation. She noted that higher interest rates on government securities would naturally divert funds from riskier private sector investments.

Moderation Needed

Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), emphasized the need for moderation in borrowing to avoid overheating the economy and crowding out private sector investment. He highlighted that borrowing, when properly financed, might not be inflationary but warned against the long-term sustainability of rising debt levels.