The Federal Government has borrowed N19.91trn from the Central Bank of Nigeria through its Ways and Means Advances.
Ways and Means Advances is a loan facility the Central bank uses to finance budget deficits.
As of December 2021 total Ways and Means Advances to the Federal Government was N17.46 trn. From January to June 2022, the Government borrowed N2.45 trn.
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 about temporary deficiency of budget revenue at such rate of interest as the bank may determine.
“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,” the CBN Act said.
Information 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 of March 2022.
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 the monetary base leading to an adverse effect on domestic prices and exchange rates i.e macroeconomic instability because of excess liquidity that has been injected into the economy,” the publication said.
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.
A Professor of Finance and Capital market with the Nasarawa State University, Uche Uwaleke said the rate at which the Apex Bank was lending to the Federal Government was worrisome, resulting in inflation.
“In the face of dwindling revenue, the Government can curtail the deficit by blocking leakages and curtailing wastes in public expenditure.
“CBN should strictly adhere to the cap provided in sector 38 of the CBN Act to the effect that such lending does not exceed 5 percent of the Federal Government actual revenue in the preceding year,” he said.
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