Finance Minister Wale Edun declared that Nigeria will stop the highly criticised method of relying on its central bank to cover its budget shortfall. Bringing structure to the nation’s borrowing practices, Edun, while in Abuja, disclosed this crucial information to the media during the signing ceremony of the 2024 budget. He explained that Nigeria has collected a sum of $33 billion from its central bank in the past. President Bola Tinubu wasted no time asserting his authority upon assuming office in May. His first action involved the removal of the central bank chief, who had long overseen the provision of ways and means advances to bridge Nigeria’s revenue shortfall, thereby inflating the nation’s debts.
Edun stated that the utilisation of financial resources from the market, instead of resorting to currency printing by the central bank, is leading to the elimination of various methods and strategies. He further mentioned that Tinubu is known for implementing a range of economic changes that received applause from global investors, but yet faced criticism domestically due to a surge in living expenses and has additionally commanded an inquiry into the central bank during the tenure of former Governor Godwin Emefiele, who has subsequently been apprehended on various charges, including fraud, now faces investigation.
FG decided to hide the source of funds acquired from the central bank.
Further speaking, he unveiled that the World Bank strongly condemned the escalating inflation rate of 28.2% in November, the highest in 18 years, due to the central bank’s funding methods. This approach had significantly increased during the tenure of President Muhammadu Buhari, who assumed office in 2015. As a result, the nation’s borrowing expenses surged to over 90% of its total revenues in the previous year. Also, he explained that in an attempt to manage the situation effectively, legislators reached a consensus the previous year to transform 22.7 trillion naira, which is $25.4 billion of the central bank’s loans, into a 40-year bond with a fixed interest rate of 9%.
He also added that they once again gave their approval to Tinubu’s plea to transform the overdraft of 7.5 trillion naira into bonds with longer maturities on December 31st. The government has chosen not to reveal the origin of this fresh funding acquired from the central bank. Consequently, Nigeria’s overall public debt escalates to about 100 trillion naira. Edun exuberantly expressed his faith in the measures taken to enhance government revenue, ultimately decreasing its dependency on borrowing, while Tinubu officially approved a budget of a staggering ₦28.8 trillion and bound it as law.
The government aimed to stop reliance on borrowing from CBN.
Also, he stated that the proposed budget, surpassing the previous one by about 1.3 trillion naira, envisions a deficit equivalent to 9.8 trillion naira, amounting to 3.8% of the country’s GDP for this year. The funding for this ambitious plan primarily relies on borrowing from the local debt market and securing loans from various multilateral lenders. African borrowers have faced significant difficulties accessing international capital markets due to the Covid pandemic and the subsequent surge in global interest rates, rendering borrowing excessively costly. The yield of Nigeria’s 2051 bond at the beginning of the year stood at 10.27%. He expressed high levels of optimism, assuring that not only would this budget receive sufficient funding, but it would also be funded promptly.
A similar report stated that, during an economic review session that took place at the Lagos Business School, Alex Sienaert, the Lead Economist for Nigeria at the World Bank, advised Nigeria to adopt measures aimed at curbing the government’s reliance on borrowing from the Central Bank. The purpose of this recommendation is to combat inflationary pressures on the Nigerian economy, as stressed by the World Bank Group. Sienaert also praised the Nigerian government’s commendable effort in implementing economic reforms, emphasising the crucial need to maintain these reforms in order to foster economic recovery and attain significant growth in the coming years.
Restraining the rise of currency in circulation should be made.
Lastly, one of the key consequences of the reforms he highlighted was the considerable spike in fuel prices, which has exerted strain on the economy. Sienaert additionally proposed various strategies to address inflation, such as diminishing subsidised lending by the Central Bank to medium and large enterprises, alongside downsizing the government’s borrowing from the Central Bank. The purpose of these actions is to restrain the rise in the currency in circulation and subsequently decrease inflation. On the other hand, Sienaert put forward the idea of substituting imported goods by means of implementing tariffs as a constraint on foreign exchange.