According to data from the CBN, this shows that the Federal
Government borrowed N2.45tn from the apex bank within six months.
The N19.91tn owed the apex bank by the Federal Government is
not part of the country’s total public debt stock, which stood at N41.60tn as
of March 2022, according to the Debt Management Office.
The public debt stock only includes the debts of the Federal
Government of Nigeria, the 36 state governments, and the Federal Capital
Territory.
Ways and Means Advances is a loan facility through which the
CBN finances the shortfalls in the government’s budget.
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 CBN has said on its website that the Federal
Government’s borrowing from it through the Ways and Means Advances could have
adverse effects on 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 monetary base leading to adverse effect
on domestic prices and exchange rates i.e macroeconomic instability because of
excess liquidity that has been injected into the economy,” it said.
The World Bank had, in November last year, warned the
Nigerian government against financing deficits by borrowing from the CBN
through the Ways and Means Advances, saying this put fiscal pressures on the
country’s expenditures.
Despite warnings from experts and organisations, the Federal
Government has kept borrowing from the CBN to fund budget deficits.
The PUNCH had reported that the Federal Government paid an
interest of N2.03tn from January 2020 to November 2021 on the loans it got from
the CBN through the Ways and Means Advances.
It was also reported that Federal Government paid an
interest of N405.93bn from January 2022 to April 2022 on the loans it got from
the CBN.
The Managing Director/Chief Executive Officer, Cowry Asset
Management Limited, Mr Johnson Chukwu, said the central bank lending put
pressure on the exchange rate and the inflation rate, with “liquidity that has
no productivity attached to it coming into the system.”
A development economist, Aliyu Ilias, said the refusal of
the government to remove petrol subsidy had significantly increased
expenditure, forcing the government to resort to borrowing to close its
widening fiscal deficit.
He advised the government to seek better ways of generating
revenue, such as widening its tax net and privatising its assets.
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