Credit to government surges by N11tr in one month

Credit to the government surged by over N11 trillion in the month of August 2024, as high interest rates make government securities more attractive to investors.

This is according to the latest money and credit stats data of the Central Bank of Nigeria (CBN).

The CBN data also shows that credit to the government accounts for 29.4% of N105.88 trillion net domestic credit in August as the government continues to rely more on local borrowing to fund its expenditures.

This was as the private sector experienced a slight decline in credit as debt repayment intensified, buttressing the impact of rising interest rates, which have made borrowing more expensive for businesses while driving greater interest in government securities.

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In August 2024, credit to the government reached N31.15 trillion, a sharp increase from the N19.83 trillion recorded in July 2024.

This marks a significant growth of N11.33 trillion or 57.1% in just one month. The surge in government borrowing reflects the increasing attractiveness of government securities, driven by higher yields resulting from persistent interest rate hikes by the CBN.

By comparison, in August 2023, government borrowing stood at N22.51 trillion, meaning that in the space of one year, government credit has risen by 38.5%, affirming the growing reliance on debt to finance public expenditure.

While the government is increasingly tapping into credit markets, the private sector appears to be retreating. Credit to the private sector in August 2024 stood at N74.73 trillion, a slight decrease from N75.51 trillion in July 2024.

This marks a reduction of about N780 billion, or 1.03%. Though the decline is relatively modest, it reflects the broader trend of businesses struggling to cope with rising borrowing costs as the CBN continues its monetary tightening.

In August 2023, private sector credit was significantly lower at N56.95 trillion, highlighting that while there has been an overall increase in private sector borrowing over the past year, the rising cost of debt is starting to weigh on businesses’ willingness to expand credit further.