The Federal Government’s total borrowings from the Central Bank of Nigeria through Ways and Means Advances has risen to N15.51tn, an increase of 2,286 percent in six years, according to CBN data.
According to the debt management office, the N15.51 trillion owed by the Federal Government to the central bank is not included in the country’s total public debt stock, which stood at N33.11 trillion as of March 2021.
The public debt stock is made up of the debt of the Federal Government of Nigeria, the 36 state governments, and the Federal Capital Territory.
Ways and Means’s Advances are loan facilities made available by the central bank to the government during temporary economic downturns, subject to limits imposed by law.
In the CBN Act, 2007, Section 38, the bank may grant short-term advances to the Federal Government to make up for temporary shortfalls in budget revenue at a rate that the bank may determine.
The Act says, “The total amount of such advances outstanding shall not at any time exceed five percent of the previous year’s actual revenue of the Federal Government.
“All advances shall be repaid as soon as possible and shall, in any event, be repayable by the end of the Federal Government financial year in which they are granted and if such advances remain unpaid at the end of the year, the power of the bank to grant such further advances in any subsequent year shall not be exercisable, unless the outstanding advances have been repaid.”
The Federal Government borrowed N2.4tn from the CBN in the first six months of this year, more than half of what it got in all of last year.
The N2.4tn is also more than five percent of the Federal Government’s retained revenue of N3.9tn for the previous year.
After a month in office, a month after Major General Muhammadu Buhari (retd.) became president, the total lending by the government to the apex bank stood at N648.26bn.
CBN data show that it rose from N856.33bn in December 2015 to N2.23tn in December 2016.
The total amount borrowed from the bank increased from N1.08tn to N3.31tn in 2017. It rose further from N2.1tn in 2018 to N5.41tn.
At the end of 2019, the Federal Government borrowed N8.72tn from the CBN, an increase of 61.18 percent (N3.31tn).
Last year, the government borrowed a record N4.9tn from the apex bank to plug its fiscal financing gap, bringing its total borrowing to N13.11tn by December 2020.
Fitch Ratings, a global credit rating agency, had raised concerns in January about the Federal Government’s repeated use of its Ways and Means facility with the central bank.
According to the agency, the use of central bank financing in Nigeria, which predates the COVID-19 pandemic shock, could raise risks to macro-stability in the context of weak institutional safeguards that preserve the credibility of policymaking and the ability of the central bank to control inflation.
“The CBN’s guidelines limit the amount available to the government under its WMF to five percent of the previous year’s fiscal revenues. However, the FGN’s new borrowing from the CBN has repeatedly exceeded that limit in recent years and reached around 80 percent of the FGN’s 2019 revenues in 2020,” it said.
In February, the International Monetary Fund said Nigeria’s monetary policy operational framework needs to be improved in the medium term, adding that the central bank should phase out its funding of budget deficits to reduce inflation.
“The increasing reliance on CBN overdrafts has come with negative consequences. The financing is costly for the Federal Government at interest rates of MPR plus 300 basis points, and for the CBN, with sterilization done through the issuance of OMO bills,” it said.
Additionally, the IMF added that removing center bank financing of fiscal deficits would require increasing domestic revenue generation.
The Washington-based fund has approved Nigeria’s request for an emergency financial assistance of $3.4 billion in response to severe economic impacts resulting from the COVID-19 shock and the sharp decline in oil prices.
In a letter of intent to the IMF, the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, and the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, said that central bank financing would be eliminated by 2025.
They added that the existing stock of overdrafts held at the CBN would also be securitized.
The Managing Director and Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, described N15.51tn as ‘quite large,’ stressing the need for the government to securitize it.
