The debt owed by the Federal Government of Nigeria (FGN) to the Central Bank of Nigeria (CBN) has ballooned in recent years as the nation’s monetary regulatory authority has failed to obey its own law.
BusinessDay reported on Tuesday that the Federal Government borrowed N3.15 trillion from the CBN between January and July 2022, which brought its cumulative debt obligations to the apex bank to N20.61 trillion as of July 2022.
“Nigeria’s total public debt as at March 2022 stood at N41.6 trillion. This represents a N2.048 trillion or 5 percent increase in three months when compared to the N39.56 trillion recorded as at December 2021. This however does not include FGN’s CBN Ways and Means outstanding currently estimated at about N20 trillion,” the government said in its 2023-2025 Medium Term Expenditure Framework/Fiscal Strategy Paper.
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.
One of the provisions of the CBN Act, 2007 mandates that in the event of a revenue shortfall, the CBN must not lend to the Federal Government an amount more than 5 percent of the previous year’s revenue of the government. That section of the CBN Act aims to prevent the overreliance of the central government on CBN financing, instead of opening up the economy to boost domestic investments as well as attract foreign direct investments.
Section 38 of the CBN Act states: “Notwithstanding the provisions of the section 34(d) of this Act, the Bank (CBN) may grant temporary advances to the Federal Government in respect of temporary deficiency of budget revenue at such rate as the Bank may determine. The total amount of such advances outstanding shall not at any time exceed five (5) percent of the previous year’s actual revenue of the Federal Government.
“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.”
In December 2016, a former governor of CBN, Sanusi Lamido Sanusi, raised concern over the violation of the CBN Act with respect to financing of government’s deficit.
“The CBN-FGN relationship is no longer independent,” Sanusi said at an event organised by the Savannah Centre for Diplomacy, Democracy and Development in Abuja.
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“In fact, one could argue their relationship has become unhealthy. CBN claims that the FGN now tops N4.7 trillion – equal to almost 50 percent of the FGN’s total domestic debts. This is a clear violation of the Central Bank Act of 2007 (Section 38.2) which caps advances to the FGN at 5 percent of last year’s revenues. The overdrafts alone are equal to more than 10 times that prescribed limit, and are growing every month,” he added.
FGN’s retained revenue in 2015 stood at N3.43 trillion, meaning that in 2016, CBN’s total lending through its Ways and Means to the FGN in 2016 should not have exceeded N171.55 billion. In 2016, FGN’s total revenue was N3.18 trillion which put a limit to CBN’s lending to the government in 2017 at N159.24 billion.
In 2018, CBN’s lending to the FGN should have been N142.37 billion, considering the total retained revenue of N2.85 trillion in the previous year. In 2019, the CBN should not have lent more than N209.28 billion to the government. CBN’s lending to the FGN should have been at maximum N240.05 billion in 2020, and N201.24 billion in 2021. This brings what should have been the total lending of the CBN to the FGN to N1.12 trillion from 2016 to 2021.
However, available data show otherwise. In 2020, CBN’s loans to the FGN amounted to N4.389 trillion. In 2021, another N932.6 billion was lent to the FGN which implies in two fiscal years, the FGN obtained N5.32 trillion from the CBN.
On near-term macroeconomic and structural policy options to support Nigeria’s rise to its potential, the World Bank, in its latest Nigeria Development Update report, highlighted 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”.
