Within six months, the Buhari administration has borrowed over N2.4 trillion from the Central Bank of Nigeria, CBN raising government’s total debt to the apex bank to close to almost N20 trillion.
This figure is contained in the data provided by the Godwin Emefiele-led CBN. The development could further spark negative remarks from the sector against the federal government, which has somehow abused the Ways and Means, W&M window.
According to the CBN Act, the federal government can borrow not more than five per cent of a previous year budget from the CBN to finance Budget deficit, but such credit is expected to be liquidated before the end of that budgetary year.
“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,” the Act said.
From all indications, the administration has abused the W&M advances which currently stands at N19.91 trillion, analyst say, particularly considering that for this year alone the N2.5 trillion borrowed is 14 per cent of the N17.73 trillion 2022 Budget.
The implication of W&M abuse, according to analysts include excessive currency in the circulation, instability in the value of the naira and increase in commodity prices (inflation) which already stands at over 17 per cent by the end of July.
The Emefiele-led government bank had earlier in the year warned of serious monetary policy problems for the country if the federal government continues on the same trajectory.
borrowing has also continued in the face of CBN’s warning of serious fiscal problems for the country.
“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,” the CBN said early this year.
Apart from the apex bank, other development partners such as the IMF, World Bank have equally warned of serious risks involved in borrowing from CBN to fund the Budget.
Last year, Fitch Ratings, an international ratings agency said the recourse to CBN is an indication of weakness in Buhari administration’s public finance management.
The agency said in a report that the federal government faced macro-stability risks except it resort to other means of financing its budget deficit.
Part of the report titled ‘Nigeria’s Deficit Monetisation May Raise Macro-Stability Risks’ read, “Sustained use of direct monetary financing could raise risks to macroeconomic stability – given the current weak institutional safeguards – but we expect the FGN to reduce its use of the facility in 2021
“The FGN directly borrowed 1.9 per cent of GDP from the CBN to fund its fiscal deficit in 2020, estimated by Fitch at 3.6 per cent of Gross Domestic Product.
“A number of emerging markets resorted to central bank deficit financing in 2020 against a background of urgent spending needs and temporary market dislocations associated with the coronavirus pandemic.
“However, the use of central bank financing in Nigeria predates the pandemic shock.”
“We estimate that the balance of the government’s WMF with the CBN was around N9.8tn (6.7 per cent of GDP) at end-2019, up from N5.4tn (4.2 per cent of GDP) at end-2018.
“Unlike the government, we include this balance in our metrics for Nigeria’s government debt. Borrowing from the facility accounted for 30 per cent of the FGN’s debt at end-2019, on our estimates.”
