Report Indicates FG Can Borrow N759bn From CBN
It was disclosed that the Federal Government (FG) can borrow up to N759bn from the Central Bank of Nigeria through the Ways and Means Advances according with the new guideline by the National Assembly.
The Ways and Means Advances is a loan facility utilised by the central bank to finance the government in periods of temporary budget shortfalls subject to limits imposed by law.
According to Section 38 of the CBN Act, 2007, the apex bank may grant temporary advances to the Federal Government with regard to temporary deficiency of budget revenue at such rate of interest as the bank may determine.
The Act read in part, “The total amount of such advances outstanding shall not at any time exceed five per cent 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.”
However, the Act placed a limit of five per cent on how much the Federal Government could borrow, although the previous administration severely violated the limit.
Recently, the House of Representatives, amid protest, has approved an amendment to the CBN Act, raising the ceiling of Ways and Means Advances from the apex bank from five to 15 per cent of the Federal Government’s previous year revenue.
According to the lawmakers, lawyers and economists, the continuous lending to the Federal Government by the CBN despite not liquidating previous advances, is unlawful as both the government and the apex bank have been in breach of Section 38(2), (3a) of the Act, while the current securitisation proposal will breach of Section 38(3b) of the law.
In a recent report, the Federal Government borrowed N6.07tn from the Central Bank of Nigeria through Ways and Means Advances in 2022, according to recent data from the apex bank.
This has pushed the Federal Government’s borrowing from the CBN from N17.46tn in December 2021 to N23.53tn in December 2022.
The Senate and the House of Representatives approval of the request of the President for Ways and Means Advances restructuring, have however adds to the existing debt stock.
With the approval by the Senate of the N22.7tn loan from the CBN extended to the Federal Government under its Ways and Means provision, Nigeria’s total debt will rise to N68.95tn.
The Debt Management Office recently disclosed that Nigeria’s total public debt stock increased to N46.25tn in the fourth quarter of 2022.
The Senate Leader, Ibrahim Gobir, who led the Senate in the debate for the approval of the Ways and Means Advances, revealed that part of the money was given as loans to states.
On its website, the CBN said that the Federal Government’s borrowing from it through the Ways and Means Advances could adversely affect the bank’s monetary policy to the detriment of domestic prices and exchange rates.
“The direct consequence of central banks’ financing of deficits are distortions or surges in the monetary base leading to adverse effects on domestic prices and exchange rates i.e macroeconomic instability because of excess liquidity that has been injected into the economy,” it said.