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FG borrowing from CBN remains above limit

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By Usman Oladimeji

Governments borrowing from the CBN remained at N4.36 trillion.

Official data reveal that as of June, one month after President Bola Tinubu’s predecessor securitised a huge piece of the overall debt, the federal government’s borrowing from the Central Bank of Nigeria (CBN) remained at N4.36 trillion. In the last years of his eight-year presidency, President Muhammadu Buhari securitized N22.7 trillion in debt taken out under the central bank’s Ways and Means Advances credit facility, which is designed by the central bank to cover periodic gaps in the budget shortfall with limits as specified by law.

In accordance with Section 38 of the CBN Act, 2007, the aggregate amount of such advances that may be outstanding at any given time may not be more than five percent of the actual revenue of the federal government in the immediately preceding fiscal year. At N4.36 trillion, the national debt is considerably larger than 5% of the federal government’s revenue of N8.8 trillion in the previous fiscal year. Prior to the securitization, which allowed an additional N22.7 trillion to be added to the country’s public debt stock, the debt owed to the central bank had risen to N26.95 trillion in May.

Borrowing from the CBN is not off the table for the government.

Public debt increased to N87.38 trillion in June from N49.85 trillion in May, according to the Debt Management Office’s (DMO) report released in September. In addition to securitization, the significant naira depreciation in June contributed to the increase in governmental debt. The federal government used the Ways and Means Advances to borrow N2.99 trillion in the first half of this year, according to data from the CBN. Towards the end of Buhari’s presidency regime, the National Assembly amended the CBN Act to raise the maximum annual borrowing limit for the federal government from the central bank to 15% of the previous year’s revenue.

Muda Yusuf, chief executive officer, Centre for the Promotion of Private Enterprise argues that the government cannot completely shun Ways and Means advances. This is because as it is spending, sometimes there is a lag between the time the government wants to spend and the time the revenue will flow. He clarified that borrowing from the CBN is not off the table for the government. However, it has to be short-term as the duration can’t go beyond what the law permits. This administration took office in May, therefore the N4 trillion in question is part of the left over of the previous one. It’s unlikely that it was incurred by the current administration, he added.

Annual headline inflation was 26.72 percent in September.

FSDH Merchant Bank Limited’s relationship manager, corporate banking, Ayodele Akinwunmi, has stated that the current management is committed to keeping spending within the budgeted amount. He further noted that while the CBN acts as a banker and advisor on loan structure and management for the Federal Government of Nigeria, it is the DMO that is charged with managing the country’s debt. In June, the World Bank noted that rising inflation, weakened effectiveness of monetary policy, increased money supply were caused by the CBN’s provision of development financing at subsidized rates and the monetization of the fiscal deficit through costly Ways and Means Advances.

Money supply rose to N67.18 trillion in September 2023, up from N53.13 trillion in January of that year, an increase of 26.44 percent. According to the National Bureau of Statistics, annual headline inflation was 26.72 percent in September, up from 25.80 percent in August. To enforce statutory restrictions on the use of methods for financing public sector deficits, CBN governor Yemi Cardoso said the apex bank was considering control alternatives. According to Capital Economics, a London-based economic research organisation, federal revenue generated from January and July this year were almost 20 percent lower than expected, contributing to a widening budget deficit.

State of public finances are becoming increasingly unstable.

It pointed out that despite higher global oil prices, oil revenues alone have underperformed this year, highlighting the magnitude of Nigeria fiscal challenges. The state of the public finances is becoming increasingly unstable as a result of all of this. Given the projected increase in inflation, financial pressures are anticipated to increase and that could lead to a rise in the ratio of public debt to GDP in Nigeria. The firm indicated that in such a situation, drastic measures like financial repression might be required to reduce the debt burden.

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