Ways & means: NASS proposes 21-year imprisonment for breach of CBN Act

The Nigerian Senate has introduced a bill to amend the Central Bank of Nigeria (CBN) Act of 2007, proposing a 21-year imprisonment penalty for breaches of the CBN Act limit on ways and means advances. 

This proposed legislation, spearheaded by Senator Mukhail Adetokunbo Abiru (Lagos East), aims to significantly increase the penalties for naira abuse and enhance the CBN’s ability to fulfil its primary objectives.

The bill, which is entitled ‘A Bill for an Act to Amend the Central Bank of Nigeria Act No. 7 of 2007’, with a copy of the amendments seen by Nairametrics, overhauls Section 38 of the Principal Act by introducing stringent measures to regulate temporary advances granted by the CBN to the Federal Government. 

According to the amendment bill, any individual or group found guilty of violating the provisions of Section 38 will be required to refund the amount exceeding the set limits and will face imprisonment for a minimum period of 21 years without the option of a fine. 

It read: “Any person or group of persons who breaches or is involved in the breach of the provision of this section 38 shall be guilty of an offence and be liable to refund such amount that exceeds the limits set in this section and shall also be liable to imprisonment for a minimum period of 21 years with no option of fine.”

This amendment comes at a time when a former CBN governor, Godwin Emefiele, whose tenure is known for breaching the CBN Act limit, is battling several court cases from the Economic and Financial Crimes Commission (EFCC).  

 Limits on advances 

The amendment bill states that the total amount of advances should not exceed 10% of the Federal Government’s actual revenue from the previous three years, excluding proceeds from asset sales. 

This is a 100% increase from the 5% of the previous year’s revenue in the CBN Act of 2007. It is also lower than the 15% earlier proposed by the Ninth Senate.

Also, the amendment expanded the period from just the previous year to the previous three years, giving the Federal Government more borrowing space from the CBN. 

Interest rates 

The amendment bill specifies that temporary advances to cover budget revenue deficiencies should be granted at interest rates determined by the CBN in collaboration with the Coordinating Committee for Monetary and Fiscal Policies. 

The interest rate must not be lower than the average Monetary Policy Rate (MPR) of the preceding 12 months. 

The bill read: “Notwithstanding the provisions of section 34 (d) of this Act, the Bank may grant temporary advances to the Federal Government in respect of temporary deficiency of budget revenue at such rates of interest as the Bank may determine;

provided such rate shall be determined with the Coordinating Committee for Monetary and Fiscal Policies and shall not in any case be below the average MPR for the preceding 12 months.

The total amount of such advances outstanding shall not at any time exceed ten percent of the previous year’s actual revenue of the Federal Government in the preceding three years excluding proceeds from assets sale.”

Repayment terms 

The amendment bill states that advances must be repaid within 12 months from the date they are granted. If not repaid within this period, the interest rate increases by 10%. 

Furthermore, no further advances can be made until outstanding amounts are fully repaid.Importantly, repayments cannot take the form of promissory notes or any securities underwritten by the bank. 

The document read: “All Advances made pursuant to this section shall be repaid –

“(a) as soon as possible and shall in any event be repayable at the end of twelve months after the advance date and if such advances remain unpaid at the end of the year the interest rate payable shall increase by ten percent, 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 and any such outstanding amount shall be held against the proceed of the sale of government asset; and

“(b) in such form as the Bank may determine; provided that no repayment shall take the form of a promissory note or such other promise to pay at a future date or securitisation by way of issuance of treasury bills, bonds, certificates or other forms of security which is required to be underwritten by the Bank.”

More Insights 

• The Ways and Means Advances provision serves as a mechanism enabling the government to secure short-term or emergency financing from the CBN to address cash flow gaps. 
• A significant development occurred between May 3 and 4, 2023, as both chambers of the Ninth National Assembly approved the securitization of N22.7 trillion from the N23.3 trillion previously advanced by the CBN to the Federal Government through ways and means. 
• This debt was subsequently transferred to the Debt Management Office (DMO) with a 40-year tenor, a 3-year moratorium, and an interest rate of 9%. 
• Also, the Senate of the 10th Assembly, mirroring its predecessor in the Ninth Assembly, approved the securitisation of the outstanding N7.3 trillion in Ways and Means. 
• Nairametrics exclusively reported that the Federal Government of Nigeria received an additional N3.8 trillion in what appears to be fresh Ways and Means Borrowing in the last six months of 2023.  
• This is despite news reports noting that the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, suggested that President Bola Tinubu’s government had not borrowed money from the CBN.  
• The Federal Government allocated approximately N4.83 trillion from the proceeds of Nigerian Treasury Bills (NTBs) and Bonds issued in 2024 to settle the Ways and Means Advances from the CBN.

(Nairametrics)