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Nigeria stops deficit funding from the CBN

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By Okunloye Abiodun

About $33 billion has been borrowed from CBN to cover budget shortfall.

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.


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AN-Toni
Editor
1 month ago

Nigeria stops deficit funding from the CBN.About $33 billion has been borrowed from CBN to cover budget shortfall. – Express your point of view.

SarahDiv
Member
1 month ago

The decision to stop deficit funding from the Central Bank and shift towards a more structured borrowing approach is a positive step. It reflects a commitment to financial discipline and reducing dependency on the central bank’s methods. However, there is a need for transparency in disclosing the source of funds to avoid concerns about escalating public debt. The focus on economic reforms and addressing inflationary pressures aligns with the broader goal of ensuring sustainable and inclusive growth for Nigeria.

Adeoye Adegoke
Member
1 month ago

It’s great to hear your thoughts on Nigeria’s decision to stop deficit funding from the CBN and the significant amount that has been borrowed to cover the budget shortfall. It’s definitely a complex issue with various factors to consider.
On one hand, relying heavily on deficit funding from the CBN can have implications for the economy. It can lead to inflationary pressures and put strain on the central bank’s ability to effectively manage monetary policy. By reducing deficit funding, the government may be aiming to promote fiscal discipline and ensure a more sustainable financial system in the long run.
However, it’s important to also consider the potential challenges that arise from this decision. Borrowing such a substantial amount from the CBN indicates a significant budget shortfall, which raises questions about the country’s fiscal management. It’s crucial that alternative sources of funding are available to cover the budget gaps and support essential government programs and services.
Finding the right balance between fiscal responsibility and meeting the needs of the country is key. It may require exploring other avenues for revenue generation, such as diversifying the economy, attracting foreign investments, and implementing effective tax policies. Additionally, ensuring transparency and accountability in the management of public funds is vital to build trust and confidence in the government’s financial decisions.
Ultimately, it’s important for the government to carefully evaluate the potential consequences and have a comprehensive plan in place to address the budget shortfall and promote sustainable economic growth.

Kazeem1
Member
1 month ago

Regarding financial discipline, I think the Central Bank’s decision to stop supporting deficits is a positive step. Encouraging the public to know the sources of money is essential. It is in line with our long-term growth objectives to prioritize economic reforms and combat inflation.

Taiwo
Member
1 month ago

Nigeria ceases receiving CBN deficit money. In order to overcome the budget shortfall, almost $33 billion has been borrowed from CBN. It is noteworthy to learn that Nigeria has borrowed approximately $33 billion to bridge the budget deficit and has chosen to discontinue receiving deficit finance from the CBN. Paying down the national debt is a good first step in that direction. Responsible financial management is essential.