The Federal Government’s total borrowing from the Central Bank of Nigeria through Ways and Means Advances has increased by 96.54 percent, or $8.92 trillion, in two years, according to CBN data.
According to a year-on-year comparison, it increased from N9.24tn in January 2020 to N18.16tn in January 2022.
According to the Debt Management Office, the N18.16tn owed by the Federal Government to the apex bank is not part of the country’s total public debt stock, which stood at N39.56tn as of December 2021.
Only the debts of the Federal Government of Nigeria, the 36 state governments, and the Federal Capital Territory are included in the public debt stock.
Ways and Means Advances is a loan facility provided by the CBN to cover shortfalls in the government’s budget.
According to Section 38 of the CBN Act of 2007, the apex bank may grant temporary advances to the federal government in the event of a temporary shortfall in budget revenue at the bank’s discretionary rate of interest.
The Act stated, in part, that “the total amount of such advances outstanding shall not at any time exceed 5% of the Federal Government’s actual revenue for the preceding fiscal year.”
All advances shall be repaid as soon as possible and, in any case, by the end of the Federal Government fiscal year in which they are granted; if such advances remain unpaid at the end of the year, the bank’s power to grant such further advances in any subsequent year shall be forfeited, unless the outstanding advances have been repaid.”
The CBN stated on its website that the Federal Government borrowing from it through Ways and Means Advances could have a negative impact on the bank’s monetary policy, harming domestic prices and exchange rates.
The direct result of central banks financing deficits is distortions or surges in the monetary base, which have an adverse effect on domestic prices and exchange rates, resulting in macroeconomic instability as a result of excess liquidity injected into the economy,” it said.
In November of last year, the World Bank warned the Nigerian government against financing deficits by borrowing from the CBN through the Ways and Means Advances, claiming that this would put fiscal pressures on the country’s expenditures.
Despite warnings from experts and organizations, the Federal Government has continued to borrow from the CBN to cover budget deficits.
