CBN: FG Shuns IMF, Fitch, Others Borrows N19tn From Apex Bank

By Tosin Olatokunbo

The President Muhammadu Buhari’s administration has borrowed over N19 trillion from the Central Bank of Nigeria, CBN since it came to power in 2015. As at April this year the total debt to CBN stood at N19.1 trillion, according to checks from the apex bank.

The information is contained in a CBN data which also showed that the administration increased the debt to the apex bank by close to N2 trillion within the first four month of the year.

The development came exactly a year after Fitch Ratings, a US based ratings agency warned the government to stop borrowing from the Governor Godwin Emefiele-led CBN.

International development partners such as the International Monetary Fund, IMF and the World Bank have also disavowed government’s borrowing from the apex bank.

The IMF for instance, had in February this year cautioned the Buhari’s administration from taking overdraft from  the CBN  to fund its proposed N2.55 trillion petrol subsidy

Fitch, had in a report titled ‘Nigeria’s Deficit Monetisation May Raise Macro-Stability Risks’, said the government is complicating the nation’s total debt problems by borrowing from the CBN through Ways and Means, W&M.

According to the CBN Act, the federal government is allowed to take an overdraft from the CBN, not more than five per cent of the current year’s Budget. But the administration has flouted the Act consistently by borrowing more from the apex bank and not paying back as provided in the Act.

In the Fitch report, the rating agency said borrowing from the CBN has many consequences attached to it, including the risks to macro-economic stability. The agency had advised the Buhari’s administration to look for other means of borrowing funds, warning also that it’s better not to borrow at all, particularly when the debt is used to finance Budget Deficit.

The agency said the corona virus pandemic which slowed a larger part of the world’s economy has slowed down, and there’s no longer need to borrow.

The report said, “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.”

Section 38 of the CBN Act provides for the apex bank to advance loans to the federal government. The overdraft, the Act said must not exceeds five per cent of the Budget of a financial 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.