CBN dares NASS on 5% Ways and Means advance limit, lists dangers of fuel subsidy removal
By Emma Ogbuehi
In apparent defiance of a recent bill passed by the National Assembly (NASS) which proposed increasing the Ways and Means Advance limit to 10 per cent, the Central Bank of Nigeria (CBN) has decided to maintain granting the facility to the federal government at 5 per cent for the fiscal years 2024-2025.
Ways and Means Advances are short-term loan facilities provided by the CBN to finance government budgetary shortfalls. The loans are subject to legal limits to prevent excessive borrowing.
The guideline comes as the apex bank disclosed that fuel subsidy removal, lower import bills, and increased external debt servicing obligations could pose downside risks for the growth of external reserves by 2024/2025.
The bank, however projected a positive economic output growth in Nigeria by 2024/2025 based on continued policy support in the agriculture and oil sectors, reforms in the foreign exchange market, and other measures
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These are contained in a report titled ‘Monetary, Credit, Foreign Trade, and Exchange Policy Guidelines for the Fiscal Years 2024-2025,’ released by the CBN on Tuesday. The report confirmed that the guideline aligns with the Medium-Term Fiscal Framework (MTFF).
This framework aims to manage expectations, implement consistent policies, address economic shocks, and maintain macroeconomic stability.
In February 2024, during a Senate Committee meeting, CBN Governor Olayemi Cardoso stated that the apex bank would cease providing new Ways and Means Advances until existing loans were repaid. This measure was introduced to address the country’s economic challenges.
The latest CBN document reiterated that “Ways and Means Advances shall continue to be available to the Federal Government to finance deficits in its budgetary operations to a maximum of 5.0 per cent of the previous year’s actual collected revenue.
“Such advances shall be liquidated as soon as possible and shall in any event be repayable at the end of the year in which it was granted.”
The report also mentioned that advances will now be calculated after recognising the sub-accounts of various ministries, departments, and agencies (MDAs) that are linked to the Consolidated Revenue Fund, to determine the Federal Government’s consolidated cash position.
This approach will continue into the 2024/2025 fiscal years, in line with the Treasury Single Account arrangement.
On fuel subsidy removal and its impacts on external reserves, CBN said, “The outlook for Nigeria’s external sector in 2024/2025 is optimistic, on the expectation of favorable terms of trade, occasioned by sustained rally in crude oil prices and an improvement in domestic crude oil production.
“The positive outlook is supported by the sustenance of crude oil price, propelled by the decision to cut production, and gains from capital flows and remittances.
“However, lower crude oil earnings, fuel subsidy removal, rising import bills, and increased external debt servicing obligations could pose downside risks for the accretion to external reserves.
“In addition, the sustained monetary policy tightening by central banks across advanced economies increases the risk of capital outflow.”
It added however that Nigeria’s output growth is expected to maintain a positive trajectory in 2024/2025., stressing that the growth prospects are dependent on continued policy support in the agriculture and oil sectors, reforms in the foreign exchange market, and the effective implementation of the Finance Act 2023 and the 2022-2025 MTNDP.
