Nigeria is unlikely to stop turning to the central bank for loans to finance the federal budget in 2023, as the government prepares to fight another year with a larger-than-expected fiscal deficit.

Africa’s most populous nation plans to spend 21.8 trillion naira against revenue of 10.5 trillion naira, according to the budget signed on January 3 by President Muhammadu Buhari, who will step down in May.

That leaves a deficit of 11.3 trillion naira, which will be largely covered by borrowing. Zainab Ahmed, the finance minister, said on Wednesday that N7.04 trillion will be borrowed from the domestic market, and some N1.76 trillion will be borrowed from foreign sources, while an additional N1.7 trillion will come from existing bilateral and multilateral facilities. .

The borrowing plan would make it impossible for the government to avoid borrowing from the Central Bank of Nigeria (CBN) this year, according to some analysts.

Analysts doubt the domestic market can absorb the N7trn, which will be a record and double the N3.2trn collected by the Debt Management Office from the same source last year.

Second, the government’s revenue projection is considered overly optimistic and may not be met for the eighth consecutive year. That would leave a larger deficit and open the door for more lending. Faced with the same problem (where the deficit is higher than expected), the government has resorted to the CBN.

“You can’t logically see where the cash will come from because the T-bill and bond market can’t absorb N7 trillion in a year, so more CBN lending would be needed this year,” a senior investment banker said. he told BusinessDay.

CBN’s loans to the federal government, also known as Ways and Means Advances, have more than 20-fold since 2015, from less than Naira trillion to N22 trillion.

The full amount of the loans is a violation of the laws governing the CBN, which states that the federal government can only borrow 5 percent of its earnings from the previous year.

Between 2021 and 2022, CBN lending to the government rose from N17.5 trillion to N22 trillion, meaning some N4.5 trillion was added in 2022. That is almost on par with the total revenue earned by the government during all year when the figure must not exceed five percent of public revenue.

The president is seeking approval from lawmakers to securitize the N22 trillion worth of CBN loans into 40-year bonds and the process is stalling.

Also Read: Nigerian Debt Approaches N77trn On CBN Overdraft, New Loans

The move is supposed to give the government, which spent 80 percent of its revenue servicing debt in the first 11 months of 2022, a breather from paying interest.

Nigeria will pay an additional 1.8 trillion naira ($4 billion) to pay off its debt if the plan to restructure the loans is blocked by the National Assembly, according to President Buhari.

The upper house of parliament adjourned a session to consider Buhari’s request, with some lawmakers saying the loan is unconstitutional.

“The question we need to start asking is who will take over the bonds if the CBN loans are ultimately securitized and restructured. I don’t think CBN doesn’t want to include that on their balance sheet, especially if they don’t have a market price,” said a senior banker who did not want to be named.