Buhari increases CBN loans from N17.46tr to N19.91tr
By Jeph Ajobaju, Chief Copy Editor
Loans taken by the Muhammadu Buhari administration from Central Bank of Nigeria (CBN) grew from N17.46 trillion in December 2021 to N19.91 trillion in June 2022, a rise of N2.45 trillion in six months.
Loan through CBN Ways and Means Advances is not calculated into Nigeria’s debt, which amounted to N41.60 trillion in the first quarter of the year ended March (Q1 2022), according to the Debt Management Office (DMO).
Public debt includes only the debts of the federal government, the 36 states, and the Federal Capital Territory (FCT).
Ways and Means Advances is a loan facility through which the CBN finances shortfalls in the federal budget.
Section 38 of the CBN Act 2007 says the CBN 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 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,” the Act says.
“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.”
_____________________________________________________________
Related articles:
CBN warns Abuja against excessive borrowing
Nigeria’s debt likely to scrape 36% off GDP, says World Bank
Oil money losses can fund Buhari’s projects without loans
__________________________________________________________________
Negative impact of CBN loan
The CBN has warned on its website that Abuja’s borrowing through 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 monetary base leading to adverse effect on domestic prices and exchange rates i.e macroeconomic instability because of excess liquidity that has been injected into the economy,” the CBN said, per The PUNCH.
The World Bank in November 2021 also warned the government against financing deficits through CBN loan which puts pressures on expenditure.
Despite warnings from experts and organisations, Abuja keeps on borrowing from the CBN to fund budget deficits.
It paid N2.03 trillion interest on CBN loan between January 2020 and November 2021, and another N405.93 interest between January and April 2022.
Cowry Asset Management Managing Director/Chief Executive Officer Johnson Chukwu said CBN lending puts pressure on both exchange rate and inflation rate, with “liquidity that has no productivity attached to it coming into the system.”
Development economist Aliyu Ilias added that petrol subsidy increases expenditure that forces the government to borrow to close fiscal deficit.
He advised Abuja to find better ways to generate revenue, such as widening the tax net and privatising assets.
