The Central Bank of Nigeria (CBN) has announced a substantial increase in credit to the Federal Government, which surged by N11.33 trillion, or 57.11%, in August, bringing the total to N31.15 trillion from N19.83 trillion in July. This rise is detailed in the latest Money and Credit Statistics released by the CBN, highlighting a trend of fluctuating borrowing across the three tiers of government in recent months.
In June, the credit extended to the government was recorded at N23.93 trillion, up from N19.98 trillion in April but lower than the peak of N28.38 trillion in May. The first quarter of 2024 also exhibited variability, with credit reaching N23.52 trillion in January, peaking at N33.93 trillion in February, before falling to N19.59 trillion in March.
This trend underscores the Federal Government’s increasing reliance on CBN facilities for funding capital projects, servicing debt, and meeting various fiscal obligations. However, economic analysts have voiced concerns over the sustainability of such borrowing, warning that it could impose additional strains on the economy and contribute to inflationary pressures.
In contrast, credit to the private sector saw a decline of N777.13 billion, or 1.03%, falling to N74.73 trillion in August from N75.51 trillion in July. Earlier in the year, private sector credit peaked at N80.86 trillion in February but experienced a downturn to N71.21 trillion in March. Modest growth was noted in subsequent months, with figures rising to N72.92 trillion in April, N74.31 trillion in May, and settling at N73.19 trillion in June.
Additionally, currency in circulation increased to N4.14 trillion in August from N4.05 trillion in July, reflecting a rise of N91.08 billion, or 2.25%. The combined total for government and private sector credit, alongside currency in circulation, reached N110.03 trillion in August, indicating a continuing trend where government borrowing is outpacing private sector credit and potentially crowding it out.
Research from Afrinvest indicates that the CBN is navigating a challenging landscape, balancing the need for inflation control with economic growth stimulation. Recently, the Monetary Policy Committee raised the monetary policy rate by 50 basis points to 27.25%, marking the fifth consecutive increase this year. Furthermore, the cash reserve ratio for commercial banks has been elevated to 50%, and for merchant banks to 16%, aimed at curbing excess liquidity and stabilizing the exchange rate.
Afrinvest cautioned that while these policies may help manage inflation, they risk tightening liquidity in the private sector and raising borrowing costs, which could impede economic growth. The firm has emphasized the necessity for Nigeria to adopt a more balanced fiscal management approach, focusing on stimulating private sector activity to foster sustainable economic development.
As of June 2024, Nigeria’s total public debt reached N121.67 trillion, a significant increase of 24.99% from N97.34 trillion in December 2023. This debt encompasses both domestic and external liabilities of the Federal Government, all 36 state governments, and the Federal Capital Territory, highlighting the pressing need for effective fiscal strategies moving forward.
