President Muhammadu Buhari may limit Nigeria’s next government from borrowing more if he can convince the Nigerian Senate to convert a 22.7 trillion naira ($50 billion) unpaid overdraft from the Central Bank of Nigeria (CBN) into debt public.

President Buhari’s push comes despite concerns over the legality of the loan.

Nairametrics reported that the president asked the Senate to approve his plan to convert 22.7 trillion naira into bonds that will be repayable for decades.

The concern: The move would immediately increase the country’s official debt burden by more than half, pushing Nigeria’s debt-to-GDP ratio towards the 40% limit set by the administration. Such a loan has been multiplied by 30 under the Buhari presidency. If the Senate agrees to Buhari’s proposal, it would add about 50% to the official public debt.

With such a scenario, and if the federal government maintains its debt-to-GDP ratio of 40, any incoming government would have no choice but to generate all its revenue internally, which would mean raising taxes.

Expert perspective: Commenting on the likely scenario, Moses Igbrude, the elected national coordinator of the Nigerian Independent Shareholders Association, said the Buhari administration is setting a debt trap for the incoming administration.

  • Igbrude said that if managed well, Nigeria should not have a debt problem if the debt was used for production, but lamented that the country is mired in debt service with no way out because the federal government has been borrowing for consumption over the years. , which is not sustainable.
  • However, Anthill Concepts Limited CEO Dr. Emeka Okengwu said the 40% limit set by the federal government is not sacrosanct. He said any other government can set a new borrowing limit. He added that converting CBN’s Ways and Means withdrawal into long-term debt would be a guarantee from the federal government of its commitment to repay the debt.
  • Frank Mbata, an economist at Cashlinks Trust, said Nigeria’s debt stock is becoming extremely unsustainable. He pointed out that if the country cannot service a debt of N42 trillion, it would be much more difficult to service a debt of N77 trillion. He lamented that the current generation of leaders is heaping a huge responsibility on the unborn generation.
  • Mbata stated that Nigeria will have to make the difficult decision to reduce the cost of running the government. In particular, he cited the cost of running a bloated civil service, as well as the “enormous cost” of maintaining the National Assembly.