Economy

Ways & Means hike: CBN may loan over N746bn to FG

Published

3 months ago

August 4, 2024

Admin

The Central Bank of Nigeria may print or wire over N746bn as a loan to the Federal Government based on the Ways and Means provision of the CBN Act.

In the Act, funds that the apex bank should provide to the Federal Government through Ways and Means is five per cent of the Federal Government’s previous year’s revenue.

Last week, the National Assembly raised the maximum borrowing percentage in the Act from five per cent to ten per cent.

Data from the National Bureau of Statistics on Saturday indicated that as of the third quarter of 2023, the Federal Government’s actual aggregate revenue was N7.46tn.

Based on the hike in Ways and Means funding approved by the National Assembly, the Federal Government would get no less than N746bn from the apex bank through the funding scheme.

The Ways and Means Advances are loan facilities used by the CBN to finance the government during periods of temporary budget shortfalls and are subject to limits imposed by law.

According to Section 38 of the CBN Act, 2007, the apex bank may grant temporary advances to the Federal Government with regards to temporary deficiency of budget revenue at such rate of interest as the bank may determine.

The Act read in part, “The total amount of such advances outstanding shall not at any time exceed five per cent of the previous year’s actual revenue of the Federal Government.”

The maximum borrowing percentage in the Act was hiked from five per cent to ten per cent by lawmakers last week, as they also rescinded and re-enacted the 2024 Appropriation Act through an amendment bill sponsored by leaders of both chambers.

In the Senate, the increase in the threshold was achieved through the consideration and passage of a bill sponsored by its Leader, Senator Opeyemi Bamidele (APC Ekiti Central).

In his lead debate, Senator Bamidele explained that the bill seeks to amend the CBN Act to increase the total CBN advances to the Federal Government.

He stated that the bill aims to help the government meet its immediate and future obligations due to the increasing need for funds to finance budget deficits and other expenses.

“The Central Bank of Nigeria’s advances to the Federal Government are essentially loans that the Central Bank of Nigeria provides to the government to help it meet its financial obligations. These advances are typically short-term and are expected to be repaid by the government,” he said.

Senator Bamidele explained that the request to increase the threshold from five per cent to fifteen per cent of the previous year’s revenue was made to provide immediate funds to address budget shortfalls, finance essential government expenditures, maintain financial market stability, inject money into the economy, and support critical sectors like agriculture, healthcare, and infrastructure development.

He said this would also lower government borrowing costs compared to traditional borrowing methods.

During the debate, many Senators supported the amendment but argued that the 15 per cent should be reduced to ten per cent.

However, the Federal Government had in the past taken excessive advantage of Ways and Means loans.

The administration of former President, Major General Muhammadu Buhari (retd.), had come under heavy criticism for abusing the Ways and Means.

From 2014 to 2023, the Federal Government collected N30tn through Ways and Means from the CBN without National Assembly appropriation.

Following this, the Senate set up an Ad-hoc committee led by Senator Isah Jibrin (APC, Kogi East), to carry out investigations.

Commenting on the development, financial analysts said the CBN would have to print more cash to meet the demands for increased funds through the Ways and Means advances, pointing out that this could further raise inflation.

An economist, Paul Alaje, expressed concern over the increase in Ways and Means advances to the Federal Government from five to ten per cent.

He said the move would lead to increased pressure on the CBN to print more money, potentially affecting the economy adversely.

Another economist at Lotus Beta Analytics, Shadrach Israel, also expressed concern over the recent increase, noting that it could lead to an increase in money supply and, subsequently, inflation.

He, however, acknowledged that the current upward trend in interest rates might mitigate the effects of the increase.

Recall that the Minister of Finance and Coordinating Minister of Economy, Wale Edun, said the N22.7tn printed by the CBN through Ways and Means overdraft for the Federal Government from 2015 to 2023, under former President Buhari, threw the country into the current inflation.

Economy

FG services foreign debt with $3.5bn

Published

2 days ago

November 13, 2024

Kayode Sanni-Arewa

The Federal Government spent $3.58 billion servicing its foreign debt in the first nine months of 2024, representing a 39.77 per cent increase from the $2.56bn spent during the same period in 2023.

This is according to data from the Central Bank of Nigeria on international payment statistics.

The significant rise in external debt service payments shows the mounting pressure on Nigeria’s fiscal balance amid ongoing economic challenges.

Data from CBN’s international payment statistics reveal that the highest monthly debt servicing payment in 2024 occurred in May, amounting to $854.37m.

In comparison, the highest monthly expenditure in 2023 was $641.70m, recorded in July. The sharp contrast in May’s figures between the two years ($854.37m in 2024 versus $221.05m in 2023) highlights the rising cost of debt obligations, as Nigeria battles massive devaluation of the naira.

The CBN showed significant month-on-month changes in debt servicing costs, with some months recording sharp increases compared to the previous year. A breakdown of the data revealed varied trends across the nine months.

In January 2024, debt servicing costs surged by 398.89 per cent, rising to $560.52m from $112.35m in January 2023. February, however, saw a slight decline of 1.84 per cent, with payments reducing from $288.54m in 2023 to $283.22m in 2024.

March recorded a 31.04 per cent drop in payments, falling to $276.17m from $400.47m in the same period last year. April saw a significant rise of 131.77 per cent, with $215.20m paid in 2024 compared to $92.85m in 2023.

The highest debt servicing payment occurred in May 2024, when $854.37m was spent, reflecting a 286.52 per cent increase compared to $221.05m in May 2023. June, on the other hand, saw a 6.51 per cent decline, with $50.82m paid in 2024, down from $54.36m in 2023.

July 2024 recorded a 15.48 per cent reduction, with payments dropping to $542.50m from $641.70m in July 2023. In August, there was another decline of 9.69 per cent, as $279.95m was paid compared to $309.96m in 2023. However, September 2024 saw a 17.49 per cent increase, with payments rising to $515.81m from $439.06m in the same month last year.

The data raises concerns about the growing pressure of Nigeria’s foreign debt obligations, with rising global interest rates and exchange rate fluctuations contributing to higher costs.

The global credit ratings agency, Fitch, recently projected Nigeria’s external debt servicing will rise to $5.2bn next year.

This is despite the current administration’s insistence on focusing more on domestic borrowings from the capital market.

It also estimated that approximately 30 per cent of Nigeria’s external reserves are constituted by foreign exchange bank swaps.

Regarding external debt, the agency said external financing obligation