FG Credit Surges by Over N11tn in August, CBN Reports

The Central Bank of Nigeria (CBN) has revealed a rise in credit extended to the Federal Government, which soared by N11.33 trillion—or 57.11 percent—reaching N31.15 trillion in August, up from N19.83 trillion in July. This surge reflects a continuing trend of fluctuating borrowing patterns among the three tiers of government, raising eyebrows among economic analysts.

According to the latest Money and Credit Statistics from the CBN, government borrowing has shown variability over the past few months. In June, the credit figure stood at N23.93 trillion, a notable increase from N19.98 trillion in April but lower than the N28.38 trillion reported in May. Earlier in the year, the first quarter showcased a rollercoaster of borrowing levels, with credit peaking at N33.93 trillion in February before dropping to N19.59 trillion in March.

This consistent borrowing trend highlights the Federal Government’s increasing reliance on CBN facilities for financing capital projects, debt servicing, and other fiscal commitments.

The report also noted a decline in credit to the private sector, which fell by N777.13 billion (1.03 percent) to N74.73 trillion in August from N75.51 trillion in July. Private sector credit had seen fluctuations earlier in the year, starting at N76.48 trillion in January, peaking at N80.86 trillion in February, before dipping to N71.21 trillion in March. Modest growth was recorded in subsequent months, with figures reaching N72.92 trillion in April and N74.31 trillion in May.

In terms of currency circulation, the total rose to N4.14 trillion in August from N4.05 trillion in July, reflecting an increase of N91.08 billion (2.25 percent). The combined total for government and private sector credit, along with money in circulation, reached N110.03 trillion in August, highlighting the ongoing fiscal and monetary dynamics within the Nigerian economy. However, government borrowing is increasingly dominating credit activities, raising concerns about the crowding out of private sector financing.

Research from Afrinvest indicates that the CBN is navigating a challenging landscape, attempting to strike a balance between controlling inflation and stimulating growth. Recently, the Monetary Policy Committee of the CBN raised the monetary policy rate by 50 basis points to 27.25 percent, marking the fifth consecutive rate hike this year. Additionally, the cash reserve ratio for commercial banks was increased to 50 percent and to 16 percent for merchant banks, measures aimed at curbing excess liquidity and stabilizing the exchange rate.

While these policies may help in inflation, Afrinvest warns they could further tighten liquidity in the private sector and raise borrowing costs, potentially slowing economic growth. The firm stresses the need for a more balanced approach to fiscal management, advocating for the stimulation of private sector activity as crucial for sustainable economic development.

Furthermore, Nigeria’s total public debt reached a staggering N121.67 trillion in June 2024, a 24.99 percent increase from N97.34 trillion in December 2023, highlighting the urgent need for strategic fiscal reforms in the nation’s economic landscape.