The Federal Government paid interests of N4.12tn between 2019 and 2022 on the loans it got from the Central Bank of Nigeria through Ways and Means Advances, according to findings by The PUNCH.
Data from the Medium-Term Expenditure Framework and Fiscal Strategy Papers and the public presentation documents of the approved budgets by the Ministry of Finance, Budget and National Planning.
An analysis by The PUNCH showed that in 2019, the interest paid on the CBN loans was N339.45bn. The interest payments rose to N912.57bn in 2020 and N1.22tn in 2021. For 2022, The PUNCH could only get data for January to November 2022, as the data for December 2022 was yet to be released as at the time of filing this story. The PUNCH also observed that the interest payments hit N1.64tn in 2022, indicating the payments rose by 384.14 per cent between 2019 and 2022. Despite the interest payments gulping a huge share of the Federal Government’s revenue, The PUNCH observed that there was no budgetary allocation for it each year.
Ways and Means Advances is a loan facility used by the central bank to finance the government in periods of temporary budget shortfalls subject to limits imposed by law.
According to Section 38 of the CBN Act, 2007, the apex bank may grant temporary advances to the Federal Government with regard to temporary deficiency of budget revenue at such rate of interest as the bank may determine.
The Act reads in part, “The total amount of such advances outstanding shall not at any time exceed five per cent 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.”
However, the CBN had said on its website that the Federal Government’s borrowing from it through the Ways and Means Advances could have adverse effects on the 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 adverse effects on domestic prices and exchange rates i.e macroeconomic instability because of excess liquidity that has been injected into the economy,” it said.
The World Bank had, in November 2021, warned the Nigerian government against financing deficits by borrowing from the CBN through the Ways and Means Advances, saying this put fiscal pressure on the country’s expenditures.
According to the bank, the CBN financing and the fuel subsidy tended to adversely affect investment.