Total borrowing by the Federal Government from the Central Bank of Nigeria increased from N17.46 trillion in December 2021 to N19.91 trillion in June 2022 through Ways and Means Advances.
The Federal Government borrowed N2.45 trillion from the top bank in just six months, according to CBN data.
The Federal Government owes the Apex Bank N19.91 trillion, which is separate from the country’s overall public debt stock, which the Debt Management Office estimates to be N41.60 trillion as of March 2022.
Only the debts owed by the Federal Government of Nigeria, the 36 state governments, and the Federal Capital Territory are included in the public debt stock.
The CBN uses a borrowing mechanism called Ways and Means Advances to cover the budget gaps in the government.
According to Section 38 of the CBN Act, 2007, the apex bank may, at such rate of interest as the bank may set, issue temporary advances to the Federal Government with reference to a temporary revenue shortfall in the budget.
The Act stated, in part, that the total amount of outstanding advances “must not at any time exceed 5% of the real revenue of the Federal Government for the preceding year.”
All advances must be paid back as soon as possible and must, in any case, be repayable by the end of the Federal Government financial year in which they are granted. If such advances are still owed at the end of the year, the bank will not be able to grant similar advances in any subsequent year unless the outstanding advances have been paid in full.
To the detriment of domestic prices and exchange rates, the CBN has warned on its website that the Federal Government’s borrowing from it through the Ways and Means Advances may have a detrimental impact on the bank’s monetary policy.
It stated that “macroeconomic instability due to excess liquidity that has been pumped into the economy” was the direct result of central banks financing deficits through distortions or spikes in the monetary base.
The Nigerian government was forewarned by the World Bank against funding deficits by borrowing from the CBN through the Ways and Means Advances in November of last year, claiming that doing so would put fiscal pressure on the nation’s spending.
The Federal Government has been borrowing from the CBN to cover budget deficits in spite of recommendations from experts and organizations.
From January 2020 to November 2021, the Federal Government paid N2.03 trillion in interest on the loans it obtained from the CBN under the Ways and Means Advances.
Additionally, it was revealed that the Federal Government paid N405.93 billion in interest on the loans it received from the CBN between January 2022 and April 2022.
The central bank loans, according to Mr. Johnson Chukwu, the managing director and chief executive officer of Cowry Asset Management Limited, “liquidity that has no productivity tied to it pouring into the system,” put pressure on the exchange rate and the inflation rate.
According to development economist Aliyu Ilias, the government’s failure to eliminate the gasoline subsidy has dramatically boosted spending, pushing it to turn to borrowing to address its growing budget deficit.
He suggested that the government look for more effective ways to raise money, like expanding its tax base and selling off its holdings.