The Debt Management Office (DMO) has revealed that the Federal Government of Nigeria will begin the repayment of the principal to service the loans from the Central Bank of Nigeria (CBN) through the Ways and Means Advances in four years’ time.

The DMO made this known in a Frequently Asked Questions statement on the Securitization of the N22.7tn Ways and Means Advances. According to the statement, the loan approved by the National Assembly would be for a tenor of 40 years with an interest rate of nine per cent per annum. There would be a moratorium on payment of principal for about three years.

The securities will be issued to the CBN by the Federal Government of Nigeria and will not be issued to the public to raise funds. The securitization of the Ways and Means Advances will not involve new money being given to the Federal Government, as the CBN had already provided the funds to the government. The benefits of securitization include debt transparency and a reduction in the debt service cost.

The DMO said that the new interest rate of nine per cent per annum will reduce the debt service cost as it is much lower than the Monetary Policy Rate plus three per cent, which currently translates to 21.0 per cent per annum. The reduction in debt service cost will help reduce the deficit in the budget and, expectedly, the level of new borrowings.

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The repayment of the interest on the securitized Ways and Means Advances will begin in 2023, and that of principal will begin in four years. Provisions for interest and principal repayments will be made in the Annual FGN Budgets.

The implementation of the securitization will be upon receipt of the approval of the House of Representatives, as both the Senate and the House of Representatives have approved the request of the President to restructure the N22.7tn Ways and Means Advances.

It was earlier reported that the Federal Government plans to spend N1.2tn on servicing the loans it got from the CBN through the Ways and Means Advances.

The 2023 fiscal framework document showed that the Federal Government allocated N6.31tn to service its total debts. The document also showed that this was the first time the Federal Government was making a budgetary allocation for Ways and Means.

The World Bank had warned the Nigerian government against financing deficits by borrowing from the CBN through the Ways and Means Advances, saying it put fiscal pressure on the country’s expenditures. The bank also projected that interest payments on the Federal Government’s borrowing from the CBN would gulp about 62 per cent of government revenue by 2027 despite the restructuring plan.