At the twilight of his eight-year tenure, President Muhammadu Buhari had securitised N22.7 trillion borrowed from the Ways and Means Advances, a loan facility used by the central bank to finance the government in periods of temporary budget shortfalls subject to limits imposed by law.
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, according to Section 38 of the CBN Act, 2007.
The outstanding debt of N4.36 trillion far exceeds five percent of the federal government’s revenue of N8.8 trillion for last year.
The debt owed to the central bank had surged to N26.95 trillion in May before the securitisation, which enabled N22.7 trillion to be added to the country’s public debt stock. The Debt Management Office said in September that the total public debt rose to N87.38 trillion as of June from N49.85 trillion as of May.
Aside from the securitisation, another contributing factor to the jump in the public debt was the large devaluation of the naira in June.
The CBN data show that the federal government borrowed N2.99 trillion from the Ways and Means Advances in the first half of this year.
Towards the end of Buhari’s administration, the National Assembly amended the CBN Act to increase the amount the federal government can borrow from the central bank in a year to 15 percent of the previous year’s revenue. But it has not been signed by the President into law, BusinessDay findings show.
“The loan that was securitised accumulated so much. The ways and means work like overdraft. You go to the bank for overdraft, they give you and within two or three months, you settle it. But what happened under Godwin Emefiele, former CBN governor was not treated like overdraft. It became a major revenue source, which was not fully disclosed even to the National Assembly; that was why it accumulated so much,” Muda Yusuf, chief executive officer, Centre for the Promotion of Private Enterprise, said.
According to him, the government cannot run away completely from ways and means advances because as it is spending, sometimes there is a lag between the time the government wants to spend and the time the revenue will come.
He said: “It is not as if the government cannot borrow from the CBN. But it has to be short term and not exceed the limit provided by the law.
“This administration came in May, meaning the N4 trillion was part of what the previous administration left. It was probably not incurred by this administration.”
Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, said there “is a commitment by the current administration to ensure that ways and means are within the approved limit.”
“As a banker to the Federal Government of Nigeria, the CBN also advises on loan structure and management but the DMO is vested with the responsibility to manage the debt of the country,” he added.
The World Bank said in June that the monetisation of the fiscal deficit through expensive Ways and Means Advances, and the CBN’s provision of development finance at subsidised rates had weakened the effectiveness of monetary policy, increased money supply, and contributed to high inflation.
Money supply (M3) increased by 26.44 percent to N67.18 trillion in September 2023 from N53.13 trillion in January of the same year.
In September, the headline inflation rate increased to 26.72 percent from 25.80 percent in August, according to the National Bureau of Statistics.
Yemi Cardoso, governor of the CBN, said the apex bank was considering control options to enforce statutory limits in the use of ways and means for financing public sector deficits.
Capital Economics, London-based economic research firm, said revenue collected by the federal government over January-July this year around 20 percent lower than originally budgeted, leading to a widening budget deficit.
It noted that oil revenues themselves have underperformed this year despite higher global oil prices, underlining the scale of the fiscal challenge facing Nigeria.
“All this points to the public finances looking increasingly less sustainable. Spending pressures will likely build given that inflation is set to surge further. And this risks seeing Nigeria’s public debt-GDP burden increase. In this scenario options like financial repression may be necessary to bring the debt burden down,” the firm said. (BusinessDay)
