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Economists are urging caution as the President Bola Tinubu -led administration considers utilising the Ways and Means advances from the Central Bank of Nigeria (CBN) to address revenue shortfalls.
They warn that this approach could exacerbate the country’s cost-of-living crisis, noting that the government should rather explore alternative revenue sources that do not increase the nation’s debt burden.
Earlier this month, the National Assembly had passed a bill doubling the percentage of Ways and Means loans the CBN can provide to the Federal Government from 5 percent to 10 percent of the revenue of the previous fiscal year – at the president’s request.
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Samuel Nzekwe, an economist, said these advances are not backed by productivity, which could lead to an oversupply of money in the economy, further depreciating the naira and exacerbating inflation.
“The problem with Ways and Means is that it is not backed by any productivity. Money will be awash in the economy, leading to higher inflation, and it will depreciate the naira. It will create more problems in the economy. How can the Federal Government tame inflation when borrowing from the CBN? It is not the best option. We should look for other revenue sources, stimulate productivity, and create a more enabling environment for industries to thrive, which would allow the government to generate revenue through taxes,” Nzekwe said.
Iniobong Usen. head, research and policy advisory at BudgIT, stressed that borrowing must be controlled and in compliance with the law, cautioning against any further violations.
Usen said interest rates on the loan can also be a burden on the government as the debt is for a short term and at an interest rate of about 30 percent, which includes the monetary policy rate currently at 26.75 percent and 3 percent rate per annum.
“It must not be 10 percent because it is evident that the government cannot pay back,” he said.
The Federal Government has outstanding balances of over N30 trillion owed to the CBN, which makes it illegal for the apex bank to grant further advances.
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Section 38(3) of the CBN Act 2007 provides that, “All Advances made pursuant to this section shall be repaid — (a) as soon as possible and shall in any event be repayable by the end of the Federal Government’s 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 years shall not be exercisable, unless the outstanding advances have been repaid.”
Usen advised that the government can do better with revenues from the oil sector, noting that oil production is still below par.
Bamidele, Opeyemi, leader of the Senate, during a debate on the executive bill to amend the CBN Act, argued that the 10 percent increase in Ways and Means is intended to enable the Federal Government to meet its immediate and future obligations due to the increasing need for funds to finance budget deficits and other expenses.
Bamidele noted that the National Assembly, for the first time, passed a budget that has more capital than recurrent.
He explained that the advance will inject money into the economy, stimulating economic activity and potentially creating jobs.
