Nigeria’s economy is facing a serious crisis after reports emerged that the Central Bank of Nigeria (CBN) accumulated a staggering $15 billion foreign debt in one year.
The debt was incurred through a securities lending agreement with JP Morgan and Goldman Sachs, two of the world’s largest investment banks. The CBN pledged its holdings on foreign securities as collateral for the cash.
The shocking revelation came from the CBN’s first audited financial statements in seven years, which were released on Friday. The statements showed that the CBN Group received a combined $15 billion cash from the two firms in 2023. The CBN’s foreign debt is almost half of Nigeria’s total foreign reserves, which currently stand at $34.1 billion.
Newsflash Nigeria spoke to some financial experts who expressed their dismay and concern over the CBN’s action. They said that the CBN violated its core mandate of ensuring the stability and efficiency of the economy by borrowing such a huge amount of money without proper approval and transparency.
Prof. Jonathan Aremu, a former Assistant Director of Research and Planning in CBN and a Professor of International Economic Relations at the Covenant University (CU), Ota, described the situation as scandalous. He said that he could not estimate the economic loss for Nigeria from the CBN’s debt.
He said that no central bank in the world has had its integrity so compromised like the CBN under the suspended governor, Godwin Emefiele. He called for the punishment of those who were involved in bringing the nation to its knees.
Prof. Chris Onalo, the Registrar/CEO of National Institute of Credit Administration (NICA), questioned the rationale behind the CBN’s borrowing. He asked what the money was borrowed for, whether it was for a productive sector of the economy or for enhancing the CBN’s operational efficiency. He also asked whether the borrowing was approved by the Presidency and the National Assembly.
Prof. Sheriffdeen Tella, a Professor of Economics at Olabisi Onabanjo University, Ago Iwoye, Ogun State, said that he was not aware of any CBN Act that allows it to borrow money from Development Finance Institutions on behalf of the federal government.
He said that even if the CBN had to borrow, it had to do so in agreement with the Ministry of Finance and the Debt Management Office (DMO). He added that the CBN’s borrowing could endanger the external reserves, which are domiciled with the World Bank and other DFIs.
Dr. Austin Nweze, a political economist, said that it was a bad omen for Nigeria’s economy. He said that the federal government had an obligation to service the debts regardless of the scarcity of funds.
Mr. Usman Philip, a financial expert, also wondered why the CBN had to borrow in the first place. He said that it was not good for the economy, considering Nigeria’s present circumstances as a struggling nation.
Dr. Oluwatobi Oyefeso, former Managing Director of Nigerian Capital Market Institute of the Security & Exchange Commission (SEC), said that huge foreign debt creates serious shortage of investment in infrastructure and social services. He said that it also exposes Nigeria to exchange rate risks and external shocks.
This debt was incurred in 2021 and 2022, and it was used to support the Naira in the face of declining oil prices and rising inflation. The debt is fully secured with securities owned by the CBN, but it is still a major concern for many Nigerians.
There are a number of reasons why the CBN’s foreign debt is so concerning. First, it is a sign that the bank is struggling to manage the country’s economy. The CBN is supposed to be the lender of last resort, but it is now borrowing money from foreign banks. This suggests that the CBN is running out of options to support the Naira.
Second, the CBN’s foreign debt is a major drain on the country’s resources. The bank will have to spend billions of dollars each year to service this debt, which will take away money that could be used for other purposes, such as infrastructure development or education.
Third, the CBN’s foreign debt could lead to a currency crisis. If the CBN is unable to repay this debt, it could lead to a loss of confidence in the Naira and a sharp depreciation of the currency. This would make it more expensive for Nigerians to import goods and services, and it could lead to higher inflation.
The CBN’s foreign debt is a serious problem that needs to be addressed. The government needs to find a way to reduce the debt burden and to improve the management of the country’s economy. Otherwise, the CBN’s foreign debt could have a devastating impact on the Nigerian economy
The CBN has not yet responded to the allegations or explained its reasons for borrowing $15 billion from JP Morgan and Goldman Sachs. Newsflash Nigeria will continue to follow this story and update you as more information becomes available.