The Federal Government of Nigeria, as of August 2022, has a total debt obligation of N22 trillion to the Central Bank of Nigeria (CBN). This debt arises from the loan the apex bank has extended to FGN under the Ways and Means provision of the CBN Act.
The Ways and Means provision allows the government to borrow from the apex bank in a situation where there is a need for short-time emergency finance to cover fiscal shortfalls resulting from delayed government expected cash receipts.
The loan the CBN has been granting the federal government through the Ways and Means provision has been on the rise, spiking 36.8 percent to reach N22 trillion in August 2022 from N16.9 trillion recorded for the same period in the previous year.
Although statutory provision permits monetary financing of fiscal deficit to a maximum of 5 percent of government revenue in the previous year, analysts believe that this level of advances by the CBN may cause a reduction in the bank’s asset quality, difficulty in attaining price stability mandate and worsening of currency and external sector pressures.
According to the CBN, “when the Federal government exceeds the limits set by existing regulations, the direct consequence of Central Banks financing of deficits are distortions or surges in monetary base leading to an adverse effect on domestic prices and exchange rates i.e macroeconomic instability because of excess liquidity that has been injected into the economy.”
Dwindling revenue collection has made the FGN susceptible to borrowings. This situation has been compounded by deficit financing. Already the country has projected a budget deficit of N10.78 trillion for the year 2023 financial year. As of the second quarter of 2022, Nigeria’s total public debt stock has raced to N42.84 trillion (USD 103.31 billion).
What the data is saying
Data from the Central Bank of Nigeria shows that the Ways and Means balance which stood at N17.4 trillion at the end of 2021 has now risen to N22 trillion as of June 2022.
The CBN has now extended to the federal government a total of N4.76 trillion (year to date) – almost half of the FGN’s total domestic debts. In the words of Sanusi Lamido, former CBN Governor, this is a clear violation of the Central Bank Act of 2007 (Section 38.2) which caps advances to the FGN at 5 percent of last year’s revenues.”
In 2021 and 2020, the CBN gave an advance of N4.34 trillion and N4.38 trillion respectively, to the government as COVID-19 and its mitigation responses took a heavy toll on government revenues.
The Ways and Means have been increasing because of the government’s inability to meet its revenue projections.
The FGN needs to reduce its recourse to CBN financing, abide by the statutory limit of 5 percent of the previous year’s fiscal revenues and reorganize its debt stock from the CBN financing into longer-term debt instruments.