The Federal Government has shown no signs of putting the brakes on its recourse to the Central Bank of Nigeria (CBN) as its borrowing from the apex bank more than doubled to N695 billion last month.
The government borrowed N3.15 trillion from the CBN in seven months, racking up N20.61 trillion in debt at the end of July, data obtained from the central bank show.
Several economists in the country as well as the World Bank and the International Monetary Fund (IMF) have raised the alarm over the Nigerian government’s continued reliance on CBN financing.
The debt owed by the Federal Government to the central bank is currently not included in the country’s public debt stock, which rose by N2.04 trillion in the first quarter of this year to N41.60 trillion, according to the Debt Management Office (DMO).
“Other countries are not ready to lend Nigeria money because we already owe a lot of money. So, the last resort is to go to the CBN. The borrowing from the CBN is not tied to any production; so it is very inflationary,” a professor of Economics at the Olabisi Onabanjo University, Ogun State, Sheriffdeen Tella, told BusinessDay.
“We have been warning all this while. Even the World Bank and IMF have also warned. We have told them a long time ago that they are not supposed to be looking at debt in relation to the GDP but to the revenue. Revenue is not rising and then you are borrowing money,” he added.
The World Bank, in its latest Nigeria Development Update (NDU) report released in June, said amid heightened risks, the government had kept a “business-as-usual” policy stance that hindered prospects for economic growth and job creation.
It said financing of the fiscal deficit and trade restrictions by the central bank continued fuelling inflationary pressures in the country.
Inflation surged to 19.64 percent in July, the highest in almost 17 years, undercutting purchasing power as Nigerians are facing higher prices for virtually everything from food to gas to rent.
“Multiple exchange rates, trade restrictions, and financing of the public deficit by the Central Bank of Nigeria continue to undermine the business environment. These policies augment long-standing weaknesses in revenue mobilisation, foreign investment, human capital development, infrastructure investment, and governance,” the World Bank said.
CBN loans to the Federal Government through the Ways and Means Advances surged by N4.34 trillion last year to N17.45 trillion in December.
Ways and Means Advances is a loan facility used by the central bank to finance the government in periods of temporary budget shortfalls subject to limits imposed by law.
The total amount of such advances outstanding shall not at any time exceed five percent of the previous year’s actual revenue of the Federal Government, according to Section 38 of the CBN Act, 2007.
“All advances shall be repaid as soon as possible and shall, in any event, be repayable by the end of the Federal Government financial year in which they are granted and 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,” it says.
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FG borrows N19.82trn from CBN under Buhari
In May 2015, when President Muhammadu Buhari came to power, the total borrowing from the CBN was N789.67 billion, claims on the central bank were N1.48 trillion and liabilities to the central government were N2.01 trillion.
The CBN data revealed that net claims on the central government jumped to N14.16 trillion in July 2022 from N9.57 trillion at the end of last year.
Claims on the central government increased to N25.79 trillion in July from N19.69 trillion at the end of last year, while liabilities to the central government rose to N11.63 trillion from N10.13 trillion.
The last time the Federal Government made a repayment was in May 2017, and its debt to the CBN has been growing steadily since then, the data showed.
“You see what has happened to our exchange rate and inflation rate. The government is inflicting more pain on the people by creating fictitious money,” Bongo Adi, an economist at the Lagos Business School, told BusinessDay.
He said the government should “arrest the hemorrhage in the oil sector” so as to increase oil production and exports.
Crude oil production in Nigeria has plunged to its lowest in decades amid rising oil theft and pipeline vandalism, leading to the loss of its status as Africa’s top producer to Angola in May. The country produced 1.08 million barrels per day (bpd) of oil in July, down from 1.39 million bpd at the start of the year.
Early this month, the Nigerian Economic Summit Group (NESG), said fiscal pressure was imploding because of declining revenues and soaring public debt amid the oil sector woes and falling external reserves.
The private sector-led think-tank recalled that the finance minister had recently alerted Nigerians that the cost of debt servicing had surpassed the Federal Government’s retained revenue as total public debt continued to rise.
“Meanwhile, CBN’s Ways and Means financing to the Federal Government peaked at N19.6 trillion as of May 2022, and the country maintains an unsustainable fuel subsidy regime. Clearly, the growing deficit means that Nigeria would rely on borrowing to finance the 2022 budget,” the NESG said in a communiqué from the meeting of its board of directors on July 26.
Nigeria saw its money stock rise by more than 10 percent in seven months, caused partly by the increased borrowing by the Federal Government from the central bank.
The broad money supply (M3) stood at N48.26 trillion in July 2022, up from N43.82 trillion at the end of last year, according to the CBN.
The Monetary Policy Committee (MPC) said at its last meeting in July that broad money supply “rose significantly to 11.52 per cent in June 2022, compared with 10.86 per cent in May 2022”, largely driven by the growth in net domestic assets.
“The sustained growth in net domestic assets was attributed to the increase in claims on the Federal Government and other sectors (public nonfinancial corporations, private sector, and state and local governments),” it said.
“The committee noted the Federal Government’s increasing debt profile and expressed concerns over debt sustainability given that global uncertainties remain elevated.”
The MPC reiterated its call to the Federal Government to urgently diversify its revenue sources through various initiatives, such as the development of a viable tax framework for the extractive and mineral export industries, to strengthen its fiscal buffers.
“The government should encourage domestic production. They should make sure that people who are supposed to pay taxes do so. They also have to reduce the revenue leakage. People are still stealing money,” Tella said.
‘Restructure debt into longer-term instruments’
On near-term macroeconomic and structural policy options to support Nigeria’s rise to its potential, the World Bank highlighted NDU report the need to “further reduce the federal government’s recourse to CBN financing, enforce the legal limit that prevents the federal government from borrowing from the CBN more than 5 percent of the previous year’s fiscal revenues” and “restructure FGN’s debt stock from the CBN into longer-term debt instruments”.
In a letter of intent to the IMF regarding Nigeria’s request for emergency financial assistance of $3.4bn in 2020, Zainab Ahmed, minister of finance, budget and national planning, and Godwin Emefiele, CBN governor, said the recourse to central bank financing would be eliminated by 2025.
Bloomberg reported on February 16, 2021 that the Federal Government had set the terms for the conversion of its stock of central bank overdrafts into long-term notes in a bid to create transparency around its dependence on that source of funding.
Patience Oniha, director-general of DMO, was quoted as saying at the time that the N10 trillion debt would be exchanged for 30-year notes issued to the central bank, adding that the agreement on timing for the conversion needed to be finalised to get the required approval from the cabinet, at the earliest in the second quarter of 2021.
Oniha said in October last year that the country’s public debt-to-GDP ratio was increased from 25 percent to 40 percent to accommodate other existing debts, including the ways and means advances as well as promissory notes being issued by the government.
“We are about 22 percent in June 2021. But we do recognise that some things are happening that should be part of debt stock. One of them is the ways and means advances. So, you have to create space for it; you don’t have to wait until you securitise it,” she said at the Nigerian Economic Summit in Abuja.
According to her, the ways and means advances have to go through a process for it to be included in the public debt stock.
“So, we are going through that process of restructuring it, and once it is restructured and it passes through the Federal Executive Council and the National Assembly, it will be added to the public debt stock. The CBN Act allows it to lend to the Federal Government; it is just how much it should lend that is the issue,” she said.
Oniha, in an interview with journalists in March this year, spoke on the process of converting the CBN overdrafts to bonds.
“The process of converting the CBN Ways and Means, which is the government’s overdraft at the Central Bank of Nigeria, into long tenor bonds is still ongoing, and related parties, that is, the monetary and fiscal authorities, are still in discussions,” she said at the time.
