A financial expert, Prof. Uche Uwaleke, says the securitisation of the Central Bank of Nigeria’s (CBN) N22.7 trillion Ways and Means Advances will afford the Federal Government a ‘breather’ in terms of debt service burden.
Uwaleke, a Professor of Capital Market at the Nasarawa State University, Keffi said on Friday in Abuja that the repayment of the over N22 trillion will now be spread over 40 years with a three year grace period on the principal sum.
“In respect of the securitisation of the Ways and Means, the government debt restructuring arrangement affords it a breather in terms of debt service burden.
“Similarly, the cost of annual debt service will reduce given the concessional rate of nine per cent as against the current 20.5 per cent interest rate charged on CBN’s Ways and Means.
“The cumulative effect of these would be a reduction in government budget deficit and freeing up resources that could be applied to more productive areas,” he said.
Uwaleke said that It was also important to note that since the securities will only be taken up by the CBN and not the public, the fear that it will crowd out the private sector was no longer there.
“There is equally the issue of debt transparency that it engenders.
“Before now, CBN’s Ways and Means did not form part of the public debt stock reported by the Debt Management Office.
“Securitisation would entail including it as part of the country’s public debt which makes for transparency ” he said.
He said that, henceforth, adequate safeguards should be put in place to ensure that CBN’s Ways and Means were curtailed due to its negative impact on the general price level.
“The relevant provisions of the CBN Act should clearly stipulate the conditions under which debt limits can be breached.
“The process should involve approval by the National Assembly as well as stiff sanctions for breach of the limits provided in the Act without following due process.
The Ways and Means provision allows the federal government to borrow from the apex bank if it needs short-term or emergency finances.
This is to enable the government to fund expected cash receipts of fiscal deficits.
The Nigerian Senate had, on Wednesday, approved the request of President Muhammadu Buhari to restructure the advances through securitisation.
Based on statutory provisions, however, the approval of the Senate and the House of Representatives are required for securitisation.
Implementation can, thus, only be upon concurrent approval of the House of Representatives.