World Bank has said that interest payments on the Federal Government’s borrowings from the Central Bank of Nigeria (CBN) will gulp over 62 percent of revenue generated by 2027. The international financial organization revealed this in the latest edition of its Nigeria Development Update, which is titled, “Nigeria’s Choice.” The NDU is a biannual World Bank report series which assesses the economic and social developments and prospects in Nigeria in a longer-term and global context. According to the report, Nigeria’s economic performance has weakened since the previous report was published in June 2022.
The Federal Government of Nigeria has been borrowing from the CBN through ways and means advances – a loan facility through which the CBN finances the government’s budget deficits. Ways and means advance (WMA) is a mechanism used by reserve and central banks to help states and governments tide over temporary mismatches in their receipts and payments flow. In doing this, CBN’s advances to the Federal Government in the last seven years rose to an all-time high of N23.8 trillion. This unprecedented rise violated the law, stirred up inflation and worsened the country’s debt burden.
Central Bank’s loans to FG rose by 2900% in seven years.
On December 28, 2022, the Senate rejected President Buhari’s request for the approval of N23.8 trillion CBN loans. In May 2015 when the Buhari administration commenced, CBN’s loans to the Federal Government was N789.7 billion cumulatively. However, the current administration has drawn CBN loans each year at an unparalleled level. The government drew N5.6 trillion between January and October 2022 alone. By comparison, between December 2012 and May 2015, ways and means advances rose by only N654.9 billion.
Nigeria’s President’s attempt to seek a delayed approval for the N23.8 trillion in loans that had been spent already caused an uproar in the House. Lawmakers accused the president of violating the constitution and also demanded details of how the money was spent. While the CBN Act allows the CBN to grant temporary advances to the Federal Government to finance budget deficit, it warns that the total amount of such advances “shall not at any time exceed five percent of the previous year’s actual revenue of the Federal Government.”
FG’s yearly advances rose rapidly since 2015.
The Act also stipulates that all advances must be repaid as soon as possible, which is expected to be at the end of the financial year of the Federal Government in the year that the advances were granted. However, analysts have revealed that all criteria of that piece of legislation have been breached by the CBN under current CBN Governor Godwin Emefiele and Finance Minister Zainab Ahmed. If the law was followed, the ways and means of advances to FG for the entire 2022 would not exceed N219 billion, which is five percent of the government’s revenue in 2021.
But the yearly advances to the FG rose rapidly since 2015. The CBN’s loan as of December 2015 was N856 billion. In December 2016, it rose to N2.2 trillion and rose to N3.3 trillion in December 2017. As of December 2018, the loan had risen to N5.4 trillion and had reached N8.7 trillion by December 2019. By December 2020, the figure rose to N13.1 trillion. By December 2021, it rose to N17.4 trillion. The amount now stands at N23.8 trillion. When calculated, the FG took an average of N2.8 trillion advances per year, dwarfing the cumulative amount left by the previous administration.
CBN’s advances to FG is causing monetary inflation.
Due to this approach by the Federal Government and the CBN, the liquidity market was flooded with cash, causing inflation. In simple words, it means that there was more money in circulation and the price of goods and services skyrocketed. The World Bank’s report noted that at least five million Nigerians were pushed into poverty as a result of rising inflation costs between January and September 2022. The international financial institution estimates that about eight million Nigerians were pushed below the poverty line by inflation between 2020 and 2021. The increase in the number of poor people increased in 2022 mainly due to higher prices of local staple foods, such as rice, bread, yam and wheat, especially in the urban and suburban areas.