Seemberg News

Latest Nigeria Business News

FG budgets N1.2tn to service CBN loans

Share:

The Federal Government plans to spend N1.2tn on servicing the loans it got from the Central Bank of Nigeria through the Ways and Means Advances,

The 2023 fiscal framework document obtained by our correspondent showed that the Federal Government allocated N6.31tn to service its total debts.

A breakdown showed that the Federal Government allocated approximately N3.3tn to service domestic debts, N1.81tn for foreign debts and N1.2tn for ways and means.

The document also showed that this was the first time the Federal Government was making a budgetary allocation for ways and means.

The PUNCH had earlier reported that the Federal Government paid interests of N4.12tn between 2019 and 2022 on its borrowings from the CBN.

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.

According to Section 38 of the CBN Act, 2007, the apex bank may grant temporary advances to the Federal Government with regard to temporary deficiency of budget revenue at such rate of interest as the bank may determine

The Act read in part, “The total amount of such advances outstanding shall not at any time exceed five per cent 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.”

However, the CBN has said on its website that the Federal Government’s borrowing from it through the Ways and Means Advances could have adverse effects on the bank’s monetary policy to the detriment of domestic prices and exchange rates.

“The direct consequence of central banks’ financing of deficits are distortions or surges in the monetary base leading to adverse effects on domestic prices and exchange rates i.e macroeconomic instability because of excess liquidity that has been injected into the economy,” it said.

The World Bank had, in November 2021, warned the Nigerian government against financing deficits by borrowing from the CBN through the Ways and Means Advances, saying this put fiscal pressures on the country’s expenditures.

According to the bank, the CBN financing and the fuel subsidy tended to adversely affect investments in human and physical capital.

It said that the government had always under-budgeted for debt service as the government failed to consider the cost of ways and means financing in its debt service allocatio

A global credit rating agency, Fitch Ratings, had in January 2021, raised concerns over the Federal Government’s repeated recourse to its ways and means facility with the central bank.

The agency said that using central bank financing in Nigeria could raise risks to macro-stability in the context of weak institutional safeguards that preserved the credibility of policymaking and the ability of the central bank to control inflation.

Despite warnings from experts and organisations, the Federal Government has continued to borrow from the CBN to fund budget deficits.

The World Bank projected that interest payments on the Federal Government’s borrowing from the CBN would gulp about 62 per cent of government revenue by 2027 despite the restructuring plan.

The Washington-based bank noted this in its December 2022 edition of the Nigeria Development Update.

Previous Article

Buhari welcomes $538m agric fund by AfDB, others

Next Article

NGX launches USSD integrated payment system

You may also like

Leave a Reply

Your email address will not be published.