Abuse of the CBN Ways and Means advances to the FGN: What you should know as a Nigerian and finance enthusiast.

The Central Bank of Nigeria (CBN) provides “Ways and Means advances” to the Federal Government of Nigeria as a means of financing its budget deficits. Ways and means advances are short-term loans that are provided to the government to bridge temporary shortfalls in revenue.

Section 38 (2) of the CBN Act states that the total amount of such advances outstanding “shall not at any time exceed five (5) per cent of the previous year’s actual revenue of the Federal Government.”

Subsection (1) also states that the CBN may grant temporary advances to the Federal Government in respect of temporary deficit of budget revenue at such rate as the bank may determine.

In addition, subsection (3) stipulates that, “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 CBN provides ways and means advances by purchasing government securities such as Treasury Bills and Bonds. These securities are issued by the government to raise funds from the public, and the CBN purchases them from the government to provide the necessary financing.

Ways and means was about N648 billion when the President Buhari government came to power at the end of May 2015. As of September 2022, the total ways and means loans to the federal government stood at N22.8 trillion. (Did you just give a sigh?)

On May 4, 2023, the Senate approve President Buhari’s request of N22.7 trillion Ways and Means to be granted to the Federal Government by the Central Bank of Nigeria (CBN), bringing the loan to approximately N45.5 trillion. Now, the Senate has increased advances the apex bank could grant to the Federal Government from five per cent to 15 per cent.

The motive for the amendment of the CBN Act might be interpreted to mean that it was done to cover up for the approval the Senate earlier gave for the N22.7 trillion Ways and Means, as many had argued that the money exceeded the five per cent limit for advances from the CBN to the Federal Government. A great concern is if the FGN can meet her annual budget and be able to pay 15% of its previous year revenue to the CBN.

The use of ways and means advances can have both positive and negative implications for the economy. On the positive side, ways and means advances can help to bridge temporary gaps in government revenue, which can prevent disruptions in the delivery of public services and infrastructure projects. Additionally, ways and means advances can help to reduce the government’s reliance on printing money to finance its expenditures, which can help to manage inflation.

On the negative side, excessive use of ways and means advances can lead to an increase in the government’s debt levels and interest payments, which can have long-term implications for the economy. Additionally, reliance on ways and means advances can create a perception of fiscal indiscipline, which can erode investor confidence in the government’s ability to manage the economy.

It becomes difficult to accept that the 9th National Assembly actually understands what it is doing. There’s a global precedence in Lebanon, Ghana, Venezuela, Sri Lanka on the impact of excessive and reckless borrowings through Quantitative Easing at their Central Banks on exchange rate, debt servicing, convexity of the bonds market, credit rating, monetary tightening and its negativity impact on the economy.

It is important for the government to use ways and means advances judiciously and in accordance with sound fiscal principles. The CBN also has a responsibility to ensure that the use of ways and means advances is consistent with its mandate to maintain price stability and promote economic growth.

Sources: The Gurdian, Nairametrics and CBN Act

Disclaimer: These are my thoughts, and only mine. Not a representation of a body or organization.