Credit to the Nigerian government surged by over N11 trillion in August 2024, according to the Central Bank of Nigeria’s (CBN) latest data. High interest rates made government securities more attractive to investors, leading to a significant increase in government borrowing.
Government credit reached N31.15 trillion in August, up from N19.83 trillion in July, marking a 57.1% rise. This sharp increase in borrowing reflects growing investor interest in government securities, driven by persistent interest rate hikes by the CBN. Compared to August 2023, government borrowing rose by 38.5%, highlighting the government’s growing reliance on local debt.
In contrast, credit to the private sector declined slightly, dropping from N75.51 trillion in July to N74.73 trillion in August, a reduction of about N780 billion or 1.03%. Businesses are increasingly cautious about borrowing due to the rising cost of credit resulting from CBN’s tightening monetary policy, which has raised the benchmark interest rate multiple times to combat inflation.
The CBN’s Monetary Policy Committee raised interest rates five times in 2024, increasing the rate from 18.75% to 27.25%. This has made government securities more appealing, but higher borrowing costs also mean the government must pay more to service its debt, putting additional pressure on public finances.
The Tinubu administration has relied heavily on the domestic debt market, particularly treasury bills, to meet short-term obligations, marking a shift from previous administrations that relied on the CBN’s Ways and Means Advances.
However, rising interest rates have raised concerns about the sustainability of government borrowing, as higher debt servicing costs could crowd out spending on critical infrastructure and social services. Analysts have urged the CBN to provide more accessible financing for businesses to prevent economic stagnation amid high borrowing costs.
