New law paves way for more CBN loans to FG – Analysts

The practice of printing money to fund federal government expenditure is expected to continue under the administration of Nigeria’s President-elect Bola Tinubu following the upward review of the amount the government can borrow from the Central Bank, analysts told BusinessDay.

The Senate convened Saturday to amend the Central Bank of Nigeria (CBN) Act 2004, to increase the borrowing threshold for the Federal Government from 5 percent to 15 percent, under the Ways and Means borrowing plan.

Analysts say the move will encourage more printing of currency by the incoming Bola Tinubu’s administration which faces tough challenges, including low revenues, rising subsidy cost, multiple exchange rates among others.

“The incoming Tinubu administration will also come under pressure in its first few months as it seeks funding to meet the expenditure remnants of the previous administration. This perhaps explains why there is pressure to open the CBN’s vault to borrow even more money,” an economist who pleaded anonymity told BusinessDay.

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Oluseun Onigbinde, co-founder of BudgIT, a Nigerian civic startup said ‘Ways and Means’ financing has been converted to a budget funding instrument as opposed to the liquidity support it was intended to be.

“We might continue on this irrecoverable slope where the apex bank is fully degraded to a mere federal government parastatal,” Onigbinde said in a note seen by BusinessDay.

Kelvin Emmanuel, chief executive officer of Dairy Hills Limited said the fact that Nigeria’s Country Risk Premium increased by 600 basis points within 36 months should be an indication of what is to come if Nigeria continue on this unsustainable path of relying on overdrafts rather than raising government income.

“The 9th Senate will be remembered as the rubber stamp Senate that failed to perform its oversight functions, and led Nigeria into the path of a debt crises that might spiral into the situations we have seen in Venezuela, Sri Lanka, Lebanon and Ghana,” Emmanuel told BusinessDay.

Ola Alokolaro, partner, Advocaat Law Practice said the amendment will now make it possible for the incoming administration to borrow more from the CBN without breaking the law.

“Already, the president-elect, Bola Tinubu, has hinted that his government will rely on money supplies from the central bank as Nigeria’s revenue generation dwindles,” Alokolaro said.

In his manifesto for the 2023 general election, Tinubu promised to break away from the current system that allows the annual budget and fiscal policies to basically depend on the dollar value of the government’s projected revenue.

“To achieve optimal growth in the long term, we must wean ourselves from this limitation. A more efficient fiscal methodology would be to base our budgeting on the projected level of government spending which optimises growth and jobs without causing unacceptable levels of inflation.

As part of this prudent growth-based budgeting, we will establish a clear and mandatory inflationary ceiling on spending. However, we must break the explicit link between naira expenditure and dollar inflows into the economy,” he said in his manifesto document, tagged ‘Renewed Hope 2023’.

“Much like the European Union has done, we too must be realistic and legislatively suspend the limits on government spending during this protracted moment of global economic turmoil exacerbated by domestic challenges in security, economy and demography,” he added.

Economic experts who have reviewed the document are of the view that such an approach will further exacerbate Nigeria’s inflationary trend.

“The focus should be on restructuring the budgeting process to lean recurrent while more emphasis should be on capital expenditure,” Omobola Adu, senior economic analyst at Afrinvest, said.

Early this month, the Senate approved the request by outgoing President Muhammadu Buhari to restructure the N22.7 trillion loans borrowed by the Federal Government from the CBN through Ways and Means Advances.

The Ways and Means provision allows the government to borrow from the Central Bank of Nigeria (CBN) if it needs short-term or emergency finance to fund delayed government expected cash receipts.

The country’s public debt stock increased to N46.25 trillion as at December 2023, according to the Debt Management Office (DMO).