The Central Bank of Nigeria through its Ways and Means Advances has loaned the Federal Government about N19.91trn as at June this year.
As of December, 2021 total ways and means Advances to the Federal Government was N17.46 trn. This means the Government had borrowed N2.45trn within six months.
Ways and Means Advances is a loan facility used by the Central bank to finance budget deficits.
Data from the Debt Management Office indicates that the N19.91trn from the Ways and Means Advances is not part of the Nation’s total public debt, which currently stood at N41.60trn as at March 2022.
Ways and Means Advances is backed by 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.
It also says “The total amount of such advances outstanding shall not at any time exceed five percent 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, in one of its publications on its website, the Central Bank of Nigeria said such loans to the Federal Government could adversely affect the Apex 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 Federal Government has held its end of the bargain by paying interest on Ways and Means Advances to it. In January this year, the CBN debited the Government N2.03trn as interest from January 2020 to November 2021 on the loans it got through the Ways and Means Advances.
The Federal Government also paid an interest of N405.93b from January 2022 to April 2022 on the loans it got from the CBN.
Reacting, a Professor of Finance and Capital market, Nasarawa State University, Uche Uwaleke said the rate at which the Apex Bank was lending to the Federal Government was worrisome as it results in inflation.
Professor Uwaleke urged the CBN to strictly adhere to the cap provided in sector 38 of the CBN Act to the effect that such lending do not exceed 5 percent of the Federal Goverent actual revenue in the preceding year.
According to The Professor, in the face of dwindling revenue, the Government can curtail deficit by blocking leakages and curtailing wastes in public expenditure.
Reporting by Annabel Nwachukwu; Editing by Tina Oyinsan