Nigeria’s Dependence on Central Bank Money Will be Hard to Cure

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The Nigerian government has become dependent on central-bank borrowing and will struggle to wean itself off the copious money printing that has raised concerns about the health of Africa’s largest economy.

After revenues collapsed during the oil shock of 2015, Africa’s largest crude producer turned to the central bank, borrowing about a third of its debt from the apex lender to cover a budget deficit that has tripled during the same time. Those loans, cheap and easily available, were not clearly reflected in the fiscal accounts and raised alarm bells at the International Monetary Fund and World Bank.

Unlike the vast amount of money released by monetary authorities in the U.S. and Europe, central-bank financing in Nigeria is driven by low revenues and used mostly to pay a swelling bureaucracy and a rising debt bill.

The IMF and the World Bank have said the practice undermines confidence and hampers investment. Uncontrolled money printing by central banks led to bouts of hyperinflation across Africa in the 1980s and 1990s.

Money printing in Nigeria has added to the excess liquidity pressuring the naira downward, forcing two devaluations, and pushing inflation to a three-year high in December.