… N9.4trn FX revaluation loss wipes out operating gains
… Liquidity management costs N3trn
The Central Bank of Nigeria (CBN) has slashed its Ways and Means advances to the federal government by 59 percent, a move that signals a shift towards fiscal and monetary discipline.
‘Ways and Means Advances’ is a type of emergency loan which the central bank gives to the federal government when its revenues fall short.
According to the CBN’s 2024 financial statement released weekend, by the end of 2023, these short-term loans stood at N7.94 trillion. But in 2024, that amount dropped to N3.27 trillion, indicating a N4.68 trillion or 58.9 percent decline over the one-year period.
The reduction suggests the CBN’s bold reforms targeted at cleaning up its balance sheet and its shift toward more responsible fiscal behavior.
Why does this matter?
For years, the government has borrowed freely from the CBN to meet urgent needs like salaries and capital projects. Between July and December 2023 alone, the government took another N3.8 trillion through this route.
The total amount borrowed through Ways and Means ballooned to N22.7 trillion by the end of 2022, far more than the N7.5 trillion figure commonly quoted.
In 2023, the National Assembly approved the securitisation of the N22.7 trillion. In simple terms, this meant turning the CBN’s short-term overdrafts into long-term bonds, which spread out repayment over time. It reduced short-term pressure on the government but added to Nigeria’s total public debt, which now includes these loans.
Under the CBN Act (2007), the bank is only allowed to lend up to five percent of the previous year’s government revenue. This rule was ignored under the previous administration. But in January 2024, Olayemi Cardoso, CBN governor, made a firm declaration that Ways and Means advances would no longer be allowed until the existing ones were fully repaid.
This new discipline comes at a time when inflation is running high. Economists have warned for years that printing too much money to finance government spending adds too much cash to the system. In early 2024, Nigeria’s broad money supply (M3) jumped by over 51 percent, and the CBN itself admitted in a March 2024 report that excessive borrowing was adding to inflation pressures.
Yes, turning overdrafts into bonds buys some time, but it doesn’t erase the cost. Hence, Nigeria will now spend more on servicing its debt, which means higher interest payments and less room for other spending.
There’s also a reputational risk: If Nigeria doesn’t keep its finances in check, global investors may begin to worry about the country’s creditworthiness. Currently, Fitch rates Nigeria’s economic outlook as stable, so jeopardising this reputation could dampen investor sentiment, experts say.
FX revaluation wipes out operating gains
The CBN recorded a historic N498.2 billion loss in 2024, driven primarily by a N9.4 trillion foreign exchange revaluation loss, its most significant financial setback in recent memory.
The revaluation loss, which reflects the cost of settling foreign-denominated liabilities at weaker exchange rates, effectively erased the gains from the bank’s interest and fee-based operations.
In stark contrast, the CBN posted an FX gain of N1.2 trillion in 2023, highlighting the scale of deterioration in the country’s exchange rate environment.
The apex bank’s 2024 audited financial statement further shows that although it earned N2.87 trillion in interest income and N1.39 trillion in fees and commissions, these inflows were overwhelmed by the FX loss and a rising interest expense burden, which nearly tripled to N1.39 trillion from N498 billion in the prior year.
The surge in interest costs is linked to the CBN’s tightening cycle which placed the benchmark interest rate at 27.5 percent, raising it by a combined 875 basis points, as it ramped up OMO issuances to tame excess liquidity and combat inflation.
The dramatic FX revaluation loss is rooted in the naira’s depreciation following the June 2023 unification of the country’s multiple exchange rate windows. Since then, the naira has fallen from under N800/$ to over N1,600/$ in official markets, inflating the naira value of the CBN’s external obligations and worsening its balance sheet.
This loss represents the second time in three years that the CBN has posted negative earnings, signaling deeper structural challenges in Nigeria’s monetary management framework.
Analysts warn that such steep losses could limit the CBN’s flexibility to defend the naira or implement independent monetary policy without fiscal support. Despite a rise in total assets to N94.3 trillion from N91.5 trillion and liabilities climbing to N92.2 trillion, the erosion of earnings power raises questions about the sustainability of the apex bank’s current policy mix.
The CBN’s operating expenses also grew to N1.26 trillion in 2024, reflecting the cost of managing monetary operations under pressure. Since assuming office in late 2023, Cardoso has pushed for transparency and reforms to clean up the bank’s financial reporting and refocus it on core mandates.
However, the cost of past policy distortions, including subsidised FX, quasi-fiscal spending and unchecked credit interventions are now being laid bare in the institution’s books.
The CBN insists it remains solvent, pointing to its asset base and policy commitments. Yet the FX revaluation loss exposes the high price Nigeria continues to pay for defending an unsustainable currency regime in the face of weak dollar inflows, low oil production and a fragile investment climate.
Liquidity management loss
The statement shows that the CBN incurred a total of N3 trillion in liquidity management costs in 2024, as part of its ongoing efforts to curb inflationary pressures.
A particularly significant increase in the bank’s expenses during the year stemmed from its liquidity management operations. These costs surged to N4.5 trillion, a sharp rise from N1.5 trillion recorded in 2023, representing N3 trillion or 200 percent jump over the period.
The 2024 financial outcomes highlight progress in several areas, including improvements in external reserves, enhanced asset quality, heightened cost efficiency and a noticeable strengthening of the bank’s overall financial position.
The escalation correlates directly with the more aggressive monetary policy stance adopted throughout the year to counteract inflationary trends. To achieve this objective, the CBN conducted more frequent and larger-value Open Market Operations (OMO), aimed at absorbing excess liquidity that had been injected into the economy through various fiscal channels.
Although such operations come with substantial costs, the responsibility is carried out on behalf of the federation.
The financial statements further reveal a significant increase in the losses associated with settled derivative contracts, which rose from N6.3 trillion in 2023 to N13.9 trillion in 2024. This marked rise is attributed to the large volume of derivative contracts that the bank settled during the year. These transactions are legacy obligations that the current CBN management inherited upon assuming office.(BusinessDay)
