The Central Bank of Nigeria has disclosed a significant rise in credit extended to the Federal Government, which increased by N11.33tn or 57.11 per cent, reaching N31.15tn in August.
This figure marks a steep rise from N19.83tn reported in July.
According to the CBN’s latest Money and Credit Statistics, there has been a fluctuating borrowing pattern by all levels of government from commercial banks in recent months.
In June, credit stood at N23.93tn, showing an increase from April’s N19.98tn. However, this was lower than the N28.38tn recorded in May.
Looking at the first quarter of 2024, the data indicates a similarly erratic trend. In January, government borrowing reached N23.52tn before peaking at N33.93tn in February. By March, the figure had dropped sharply to N19.59tn.
This borrowing pattern signals the Federal Government’s growing dependency on CBN credit facilities to meet its fiscal needs, including capital project funding, debt servicing, and other obligations.
Economic analysts have raised concerns about the sustainability of this strategy, warning that it could place a further burden on the economy and escalate inflationary pressures.
Additionally, the report indicated a slight decline in credit to the private sector. The sector’s borrowing dropped by N777.13bn or 1.03 per cent, settling at N74.73tn in August, compared to N75.51tn in July.
At the beginning of 2024, private sector credit was N76.48tn and rose to N80.86tn by February, only to fall to N71.21tn by March. In subsequent months, the private sector experienced modest growth in credit: N72.92tn in April, N74.31tn in May, and N73.19tn by June.
On the monetary front, the total currency in circulation rose by N91.08bn or 2.25 per cent, reaching N4.14tn in August, compared to N4.05tn in July.
When combined, the total credit to both the public and private sectors, along with money in circulation, amounted to N110.03tn in August.
This marks a rise from the previous month, highlighting ongoing fiscal and monetary challenges, where the government’s dominance in credit activities is limiting access for the private sector.
Afrinvest, a financial research firm, noted the difficult position the CBN finds itself in. The bank is attempting to balance controlling inflation with stimulating economic growth.
The recent monetary policy changes reflect this dilemma, as the Monetary Policy Committee raised the policy rate by 50 basis points to 27.25 per cent, marking the fifth consecutive rate hike in 2024.
Along with this, the cash reserve ratio for commercial banks was increased to 50 per cent, and for merchant banks, it was raised to 16 per cent. These measures are part of the CBN’s efforts to manage excess liquidity and stabilize the naira’s exchange rate.
Afrinvest cautioned that while these policies may help to rein in inflation, they also risk further tightening liquidity in the private sector and raising borrowing costs, which could slow economic growth.
“While these policies may help control inflation, they also risk further tightening liquidity in the private sector and increasing borrowing costs, which could slow down economic growth,” Afrinvest warned.
In light of this, the research firm suggested that Nigeria needs a more balanced approach to managing its fiscal policy, emphasizing the need for a focus on stimulating private sector activity to support long-term economic growth.
Meanwhile, Nigeria’s public debt reached N121.67tn in June 2024, reflecting a 24.99 per cent increase from N97.34tn recorded at the end of 2023.
The Debt Management Office (DMO) noted that this figure includes the domestic and foreign debts of the Federal Government, all 36 states, and the Federal Capital Territory.
