Nigeria’s quest to fund an ambitious budget despite gaping revenue shortfalls has led the Federal Government’s outstanding loans/overdrafts owed to the Central Bank of Nigeria (CBN) to hit a whopping N8.1 trillion at the end of 2018.
The amount surged as much as 780 percent from N922 billion in 2014, according to data obtained from the CBN’s statistical bulletin.
A breakdown of the lending by the CBN shows that overdraft to the Federal Government stood at N5.42 trillion as at December 2018, from N3.31 trillion in the previous year. Treasury Bills and TB rediscounts stood at N464 billion in 2018, as against N459 billion in 2017.
“Isn’t the ECOWAS norm for financing of the government budget deficit by the central bank capped at 5 percent of revenue? NGN8.12 trillion looks higher than that,” Razia Khan, Africa chief economist at Standard Chartered Bank, London, said in an emailed response to BusinessDay.
Central bank credit to government which has been a major source of financing in the ECOWAS states is curbed at 5 percent.
Analysts say while central bank’s financing may be inevitable in an environment with fewer tax revenues due to recession and undeveloped financial systems, borrowing from the apex bank should be on a transitory basis.
Ideally, where such borrowing is undertaken, the loans should be repaid within the same fiscal year, and gradually, the government should wean itself off central bank financing of deficits.
Since 2015, when President Muhammadu Buhari first assumed office, the total amount of money borrowed from the CBN (Ways and Means) to meet fiscal obligation has surged by more than 14 times, no thanks to the unrealistic revenue target in which Africa’s biggest oil producer sets in its budget.
In 2014, borrowing by the Federal Government stood at N922 billion. This later surged to N2.5 trillion in 2015, N5.21 trillion in 2016, N5.87 trillion in 2017, and a whopping N8.12 trillion in 2018.
Reacting to the development, Taiwo Oyedele, head, tax and regulatory services, PwC, said CBN’s claim on the Federal Government is in principle monies printed to buy FGN securities or, put differently, a form of quantitative easing.
The impact, he said, would already have been felt on the economy by way of depreciation of the naira against major foreign currencies and inflationary pressures. In substance, both the claim and the obligation belong to the Federal Government hence it’s a zero sum item.
However, should the Federal Government decide to settle or pay down the claim, it will mean a restrictive monetary policy and potentially higher taxes from the fiscal side.
“The Federal Government has been running a huge fiscal deficit and as such, the central bank is lending to the Federal Government through Ways and Means and this has a serious multiplier effect in the economy,” said Johnson Chukwu, managing director/CEO at Lagos-based financial and investment house, Cowry Asset Management Limited.
“What this does is that it would increase inflation, crowd out the private sector and make the CBN to have a weaker balance sheet,” Chukwu said on the phone.
BusinessDay’s effort to reach the CBN to comment on this was not successful as its spokesman, Isaac Okorafor, could not respond to his calls and text message.
For donkey years, Africa’s most populous nation has never met the revenue target stipulated in the budget and the variance keeps getting wider ever since the global collapse in oil prices that sent the oil-dependent nation to its first recession in a quarter of a century. However, this hasn’t stopped the government from increasing the benchmark oil price at which it pegs the budget.
In 2018, for example, Nigeria approved a fiscal expenditure of N9.12 trillion and hoped to rake in about N7.2 trillion from both non-oil and oil sources. An anticipated revenue of about N7.2 trillion means the government would have to borrow about N1.9 trillion which in the budget is stipulated as fiscal deficit.
However, data from the Budget Office of the Federation showed that the Federal Government could only retain a meagre N3.9 trillion. A revenue figure of N3.9 trillion would increase the country’s fiscal deficit to as high as N5.22 trillion.
Going by an initial approved figure of N1.9 trillion fiscal deficit, Nigeria would need an additional funding of N3.32 trillion to meet its fiscal obligation, a move Chukwu said was raised by the apex bank minting more currency.
In 2018, the Federal Government borrowed as much N668 billion from the domestic debt market, an amount analysts say could have created funds for private sector that has over time been starved of cash by banks.
It is not just the Federal Government that the CBN has been giving bailouts, but also states and local governments. Lending to states and local governments in the form of conditional budget support doubled to N656 billion in 2018, from N300 billion in 2016.
HOPE MOSES-ASHIKE, MICHAEL ANI & OLUFIKAYO OWOEYE
