Nigeria survived an economic crisis with securitisation of WMA by the Senate, Federal Govts –  Chizea

Oredola Adeola

Nigeria has survived a national crisis that would have undermined economic activities in the country, through the Federal Government’s decision to clean up its financial mess by way of securitization of Ways and Means Advances of N22.7tn.

Dr. Boniface Chizea, an economist and MD/CEO – BIC Consultancy Services, made this known in a chat with EnergyDay, in his response to the decision of the National Assembly to approve the request of outgoing President Muhammadu Buhari to restructure the N22.7 trillion loan from the Central Bank of Nigeria (CBN) extended to the federal government under its Ways and Means provision.

According to Dr. Chizea, the overall effect of what has just happened (the securitization of Ways and Means loans of N22.7tn) is a positive development for the economy and must be seen as such.

He said, “We must applaud the Executive that took the trouble to clean up the mess. Supposing it simply walked away leaving the Central Bank to stew in its juice what could have happened?

He emphasised that “What this Administration has now tried to do is housekeeping to help clean out the mess; augers stable.

“The Ways and Means loan is accommodation extended by the Central Bank to the Government to enable it tidy over instances when it was faced with liquidity crisis as a result of shortfalls in revenue flows, such as beefing up allocations to state governments when there was a shortfall on accruals to the Treasury.

“If that was not the case, salaries will not be paid and we could reap a spate of wild cat strikes which will undermine economic activities.

“It is important to observe here and now that this is a legitimate source of funding for the government. The only problem on this occasion is that the law that stipulates how the loan should be extended for control purposes to mitigate its inflationary impacts has been kept in breach.

“This loan is supposed to be of an amount not exceeding 5% of the previous year’s aggregate revenue and no further lending should be made under this heading until the outstanding debts have been retired. Obviously, that has not been the case, otherwise the outstanding will not be 22.7 trillion Naira as it currently stands.

“Therefore for shouting out loud, this is not a new loan request, and therefore all the clamour that an outgoing Administration should not be borrowing is flouting crass ignorance.

“Even the request by the Senate last year for details before approval smacks of lack of adequate grasp of the issues. The process has been abused and we are on a journey of remediation.

“Any further delays will exacerbate the already bad situation as we were duly informed that if not securitized there will be further addition of 1.8 trillion Naira to the debt stock by the end of 2023,” Dr Chizea said.

He also noted that the Ways and Means are veritable debts that should not be isolated from the total debt stock at any point in time.

Dr. Chizea said, “I am not sure how the National Debt Management Office has treated this debt. There is the clamour that this approval will bring the debt stock to about 70 trillion.

“And therefore what should be happening now as we attempt to restructure, is to reduce the debt stock to give more headroom in this respect for additional borrowing as the need arises. And make the National debt situation not as abysmal as it now looks.

“So, what do we do as we Secrutize? The Government issues instruments: bonds which it takes to the Stock Market for the public to buy and as it were to pay off this debt burden.

“It is restructuring because the government now has an extended period of time to retire the bonds as they mature. Usually, the appetite for such debts will be dependent to the extent that the investing public assesses the offer as attractive as gauged by the coupon rate.

“There are funds out there looking for good investment outlets. One could attest to this fact as often we were informed that such government offerings were oversubscribed. Witness here the Sukuk bonds which have been issued now and again and have been reported to have been oversubscribed.

The economic analysts further revealed one problem that will certainly confront the incoming Administration is that of debt sustainability as the treasury battles the problems of inadequate revenue inflow.

According to him, it will be difficult for the government to avoid such a situation in the future. He noted that the Governments facing liquidity crises would always go to the Central Bank which has the tag of lender of last resort to the government.

“And since the Governor of the Central Bank is aware of the crises and the obvious negative consequences of refusal for macroeconomic stability, he will have no option but to oblige.

“But what we can ask for, even if we are ready to acknowledge that it would be difficult, will be to try and observe the law. But more often the problems are such that it will not scratch its surface if you do so,” Dr. Chizea said.

He further emphasised that there is an overarching need to build strong institutions which is the hallmark of developed economies.

According to him strong institutions evolve and will not just happen, adding that the Nigerians would have to revisit the recruitment process of the officers at the helm.

He said, “A situation where the President appoints even though subject to approval leaves the incumbent officer in a relatively weak position vis-a-vis the Executive. It is even more so for institutions dependent on the Executive for funding; he who pays the piper we are told dictates the tune.”