Nigeria’s central bank data shows that the federal government took out loans totalling N6.3 trillion from January through October 2022.
The federal government has used “Ways and Means Advances” to borrow money from the CBN.
The Central Bank of Nigeria (CBN) provides funds to cover government budget deficits through the Ways and Means loan facility.
From CBN’s website, we learn that the Ways and Means’ debt increased by N6.3 trillion, from N17.5 trillion in December 2021 to N23.8 trillion in October 2022.
According to data from CBN’s website, the federal government borrowed N704.3 billion from the CBN in January, N226.3 billion in February, N507.7 billion in March, and N112.3 billion in April.
More money was borrowed in May (N569.6 billion), June (N338.2 billion), July (N695.2 billion), August (N1.46 trillion), September (N749.4 billion), and October (N957.2 billion).
The current public debt stock (federal and state governments) of N42.84 trillion does not include these borrowings.
The CBN Act of 2007 requires that the sum of all outstanding Ways and Means Advances never exceed 5% of the federal government’s actual revenue from the previous fiscal year (as determined by using the formula in Section 38).
However, the federal government’s borrowings from the central bank have consistently exceeded the 5% cap.
A provision of the act states that “all advances shall be repaid as soon as practicable and shall, in any event, be repayable by the end of the federal government financial year in which they are granted” and that “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.”
The Central Bank of Nigeria (CBN) warned in a statement posted to its website that Ways and Means Advances could thwart its efforts to implement monetary policy.
As CBN put it, “the direct consequence of central banks’ financing of deficits is distortions or surges in the monetary base,” which in turn “has adverse effects on domestic prices and exchange rates, i.e. macroeconomic instability” due to the injection of excess liquidity.
The International Monetary Fund (IMF) and the World Bank have advised the federal government to reduce its demand for loans from the CBN.
In October, the federal government announced that it would issue securities like treasury bills and bonds to repay the CBN’s debt.