CBN loans to FG reached N20.6 trillion
The federal government has shown no sign of curbing its reliance on the Central Bank of Nigeria (CBN), as its borrowing from the apex bank more than doubled to N695 billion last month.
The government borrowed 3.15 trillion naira from the CBN in seven months, racking up a debt of 20.61 trillion naira by the end of July, according to data obtained from the central bank.
Several economists in the country as well as the World Bank and the International Monetary Fund (IMF) have sounded the alarm over the Nigerian government’s continued reliance on CBN funding.
Debt owed by the federal government to the central bank is currently not included in the country’s outstanding government debt, which rose by 2.04 trillion naira in the first quarter of this year to 41.60 trillion. naira, according to the Debt Management Office (DMO).
“Other countries are not ready to lend money to Nigeria because we already owe a lot of money. So the last resort is to go to the CBN. Borrowing from the CBN is not tied to no production, so it’s very inflationary,” an economics professor at Olabisi Onabanjo University in Ogun state, Sheriffdeen Tella, told BusinessDay.
“We warned all this time. Even the World Bank and the IMF have also warned. We told them a long time ago that they are not supposed to look at debt in relation to GDP, but in relation to income. Income does not increase and you borrow money,” he added.
The World Bank, in its latest Nigeria Development Update (NDU) report released in June, said that amid heightened risks, the government had maintained a “business as usual” policy that was hampering prospects for economic growth and job creation. jobs.
He said fiscal deficit financing and trade restrictions by the central bank continued to fuel inflationary pressures in the country.
Inflation jumped to 19.64% in July, the highest in nearly 17 years, squeezing purchasing power as Nigerians face higher prices for virtually everything from food to petrol through the rent.
“Multiple exchange rates, trade restrictions and Central Bank of Nigeria government deficit financing continue to undermine the business environment. These policies compound longstanding weaknesses in revenue mobilization, foreign investment, human capital development, infrastructure investment and governance,” the World Bank said.
CBN lending to the Federal Government through Ways and Means Advances jumped from N4.34 trillion last year to N17.45 trillion in December.
Ways and Means Advances are a loan facility used by the central bank to finance the government in times of temporary budget deficits subject to limits imposed by law.
The total amount of such unpaid advances shall at no time exceed five percent of the Federal Government’s actual prior year revenue, pursuant to Section 38 of the CBN Act of 2007.
“All advances shall be repaid promptly and shall in any event be repayable at the end of the Federal Government fiscal 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 these additional advances in a subsequent year cannot be exercised, unless the outstanding advances have been repaid”, he indicates.
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FG borrows N19.82trn from CBN under Buhari
In May 2015, when President Muhammadu Buhari came to power, total borrowing from the CBN was N789.67 billion, claims on the central bank were N1.48 trillion, and debts to the central government were N2.01 trillion.
CBN data revealed that net claims on central government rose to N14.16 trillion in July 2022 from N9.57 trillion at the end of last year.
Claims on central government rose to N25.79 trillion in July from N19.69 trillion at the end of last year, while debts to central government rose to N11.63 trillion against 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 since then, according to the data.
“You see what happened to our exchange rate and our inflation rate. The government is inflicting more suffering on the people by creating fictitious money,” Bongo Adi, an economist at Lagos Business School, told BusinessDay.
He said the government should “stop the bleeding in the oil sector” in order to increase oil production and exports.
Crude oil production in Nigeria plunged to its lowest level in decades amid 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, up from 1.39 million bpd at the start of the year.
Earlier this month, the Nigerian Economic Summit Group (NESG) said fiscal pressure was imploding due to falling revenues and skyrocketing public debt amid oil sector woes and falling oil prices. external reserves.
The private sector-led think tank recalled that the finance minister had recently alerted Nigerians that the cost of servicing debt had exceeded federal government retained earnings as total public debt continued to rise.
“Meanwhile, CBN Ways and Means funding to the Federal Government peaked at N19.6 trillion in May 2022, and the country maintains an unsustainable fuel subsidy regime. Clearly, the growing deficit means that Nigeria will have to resort to borrowing to fund the 2022 budget,” the NESG said in a statement from its July 26 board meeting.
Nigeria has seen its money supply increase by more than 10% in seven months, in part due to increased federal government borrowing from the central bank.
Broad money supply (M3) stood at 48.26 trillion naira in July 2022, up from 43.82 trillion naira 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 “increased significantly to 11.52% in June 2022 from 10.86% in May 2022”, largely due to growth in net domestic assets.
“Sustained growth in net domestic assets was attributed to increased claims on the federal government and other sectors (public nonfinancial corporations, private sector, and state and local governments),” he said.
“The committee noted the growing debt profile of the federal government and expressed concerns about debt sustainability given that global uncertainties remain elevated.”
The MPC reiterated its call on the federal government to urgently diversify its sources of revenue through various initiatives, such as developing a workable fiscal framework for the extractive and mineral export industries, in order to strengthen its budgetary reserves.
“The government should encourage domestic production. They should make sure that the people who are supposed to pay taxes do. They must also reduce revenue losses. People are always stealing money,” Tella said.
“Restructuring debt into longer-term instruments”
On short-term macroeconomic and structural policy options to support Nigeria’s rise, the World Bank highlighted the need to “further reduce reliance by the federal government on CBN funding, enforce the legal limit that prevents the federal government to borrow more than 5% of the previous year’s budget revenue from the CBN” and “restructure the outstanding debt of the CBN’s FGN into longer-term debt instruments”.
In a Letter of Intent to the IMF regarding Nigeria’s request for $3.4 billion in emergency financial assistance in 2020, Zainab Ahmed, Minister of Finance, Budget and National Planning, and Godwin Emefiele, Governor of the CBN, said reliance on central bank financing would be eliminated. by 2025.
Bloomberg reported on Feb. 16, 2021, that the federal government has set terms for converting its stock of central bank overdrafts into long-term notes in an effort to create transparency around its reliance on this funding source.
Patience Oniha, chief executive of DMO, reportedly said at the time that the N10 trillion debt would be swapped for 30-year notes issued at the central bank, adding that agreement on the timing of the conversion needed to be finalized. to obtain the required cabinet approval, no earlier than Q2 2021.
Oniha said in October last year that the country’s public debt-to-GDP ratio had risen from 25% to 40% to account for other existing debt, including ways and means advances as well as notes to order issued by the government.
“We are at about 22% in June 2021. But we recognize that some things are happening that should be part of the debt stock. One of them is the progress of ways and means. So you have to create space for it; you don’t have to wait to securitize it,” she said at the Nigerian economic summit in Abuja.
According to her, the advances of ways and means must go through a process to be included in the stock of public debt.
“So we are going through this restructuring process, and once it is restructured and goes through the Federal Executive Council and the National Assembly, it will be added to the outstanding public debt. lets lend to the federal government; it’s just how much it should lend that’s the problem,” she said.
Oniha, in an interview with reporters in March this year, talked about the process of converting CBN overdrafts into bonds.
“The process of converting the CBN Ways and Means, which is the government’s overdraft at the Central Bank of Nigeria, into long-term bonds is still ongoing, and the related parties, i.e. the monetary authorities and taxes, are still under discussion,” she said at the time.