The Central Bank of Nigeria (CBN) has disclosed that credit to the Federal Government increased by 57.11 percent to N31.15tn in August from N19.83tn reported in July.
According to the Money and Credit Statistics from the CBN, the federal government credit increased due to the continuous borrowing trends by the three tiers of government from commercial lenders over the past months.
The credit figure showed that in 2024, there were varying levels of borrowing from N23.52tn in January, N33.93tn in February, dropping to N19.59tn in March, N19.98tn in April, N28.38tn in May, and N23.93tn.
Due to the federal government’s continuous borrowing from CBN to fund capital projects, debt servicing, and other fiscal obligations, economic analysts disclosed that the long-term sustainability of this borrowing could lead to inflation that can cripple the country’s economy.
In terms of private sector credit, the report recorded that in January, private sector credit was N76.48tn but rose to N80.86tn in February, reflecting a dip of 1.03 percent, representing N777.13bn.
In March, credits dropped to N71.21tn from N72.92tn recorded in April. In May, credit increased to N74.31tn from N73.19tn recorded in June.
However, in August, private sector credit decreased to N74.73tn from N75.51tn reported in July.
In terms of currency in circulation, August recorded N4.14tn from N4.05tn in July, reflecting an increase of 2.25 percent.
It was noted that the combination of the federal government credit, private sector credit, and money in circulation, which amounted to N110.03tn in August, reflects the effect of government continuous borrowing on the country’s economy and how it limits private sector access to credit.
According to the Afrinvest research, the CBN was in a difficult position, trying to balance inflation control with growth stimulation.
In curbing excess liquidity and stabilising the exchange rate, the Monetary Policy Committee of the CBN recorded a 50 basis point to 27.25 percent on Tuesday in the monetary policy rate, which is the fifth consecutive rate hike this year, and cash reserve ratio for commercial banks was raised to 50 percent and for merchant banks to 16 percent.
“While these policies may help control inflation, they also risk further tightening liquidity in the private sector and increasing borrowing costs, which could slow down economic growth,” Afrinvest warned.
To avert the risk associated with the measures to control inflation, Afrinvest suggested a more balanced approach to fiscal management in addition to the incitement of the private sector to achieve sustainable economic development.
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