Interrogating CBN Gov. Olayemi Cardoso’s monetary policy planks: Remedying the abuse of the Ways and Means advances. Although Cardoso was a key member of the original Primrose Group founded by Tinubu and served as his Commissioner for Budget and Economic Planning for a while, the Cardoso I’ve known since our days at Chase/Continental Merchant Bank in the mid-80s is very independent minded and won’t fail Nigerians.
By Tiko Okoye
Last week Friday, the new kid in the CBN block, Governor Olayemi Cardoso, made his long-awaited and highly-anticipated grand entry with a first-time address to the nation. My intention is to robustly interrogate key planks of the monetary policy direction enunciated by Cardoso and next week I’ll be dwelling on his forewarning to bankers of an impending recapitalisation. But let me start by unequivocally declaring that Cardoso’s job is clearly cut out for him.
Although owned by, and expected to work with, the federal government, the CBN Act gives the institution considerable autonomy to formulate and implement monetary policy approach that must necessarily be complementary to the government’s fiscal policy thrust. The governor and deputy governors have a guaranteed tenure as they can’t be removed from office except by a ‘yes’ vote of two-thirds of the Senate. This is designed to protect them from being beholden to partisan politics in discharging their responsibilities.
In light of the foregoing, it beggars belief that Godwin Emefiele acted as if being a poodle too willing to do whatever members of the Aso Villa cabal directs him to do was the most effective way to protect the autonomy of the apex bank as enshrined in the 2007 Central Bank of Nigeria (CBN) Act. One significant area Emefiele’s top management team literally took their eyes off the ball was the Ways and Means advances.
The Ways and Means advances is an instrument provided under the CBN Act (Section 38) to grant short-term time loans to the federal government as part of its core mandate of acting as banker and financial adviser to the federal government. The advances are meant to cover shortfalls in budgeted revenues at such interest rate as the CBN may determine.
Referencing a commendable report written by one Funmilayo Odude, Partner, Commercial and Energy Law Practice (CANDELP), the two key underlying principles of Ways and Means advances as expressly stated under the CBN Act are its temporary nature and the cap placed on the amount the federal government can access within a specified time period.
Under the CBN Act, the advances are not to be granted arbitrarily. The amount and tenure are not left to the discretion of the federal government or any officer of the apex bank. First, the maximum amount that can be granted to the government at any time is 5% of the previous year’s actual government revenue. Second, the loans must be repaid before/by the end of the financial year in which they were disbursed – which is December 31. The Act bars the CBN from extending further advances until full repayment is made by the government.
To contextualize the gaping canyon Emefiele and his team, including deputy governors and directors of various departments – have pushed this nation into, let us now consider the state of Nigeria’s indebtedness, which I’m too sure all those huffing and puffing to be President are actually ignorant of else they would be sprinting away for integrity sake in the opposite direction!
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Majority of Nigerians having a foreboding feeling that the national economy is set to suddenly suffer a Humpty-Dumpty implosion as a result of an unsustainable debt overhang are spot-on. According to the Debt Management Office (DMO), the summation of public debt owed by the Federal Government, State Governments and the Federal Capital Territory (FCT) amounted to N44.06 trillion as at the end of the third quarter (3Q) of 2022, with domestic debt at N26.92 trillion and external debt at N17.14 trillion.
But the foregoing is just half the story! Not taken cognisance of is the whopping amount of N23.8 trillion ‘lent’ by the apex bank under its Ways and Means advances to the federal government! Given the deficit in the 2023 budget and the fiscal borrowing operation and approval in 4Q 2022, Nigeria’s public debt is projected to rise to N136 trillion. This is the equivalent of about $170.2 billion, including the foreign loan of $1 billion most recently passed by the Senate and using the floating rate of the dollar. More tellingly, it would balloon the nation’s debt-to-equity ratio to more than 50%, while debt service cost as a percentage of government revenue will be close to 100%!
An investigative report conducted by Premium Times indicated that CBN’s Ways and Means advances to the Federal Government increased by 2,900% in the last seven years of the Buhari administration, and this was largely done by increasingly printing larger amounts of currencies not backed by reserves!
The greatest irony was that the apex bank kept dishing out tight monetary policies that were ostensibly designed to mop up an ‘excess liquidity’ in the system and checkmate inflation. But nothing seemed to have worked despite all the draconian measures the Monetary Policy Committee (MPC) kept conjuring up. Truth’s that nothing was bound to work because just as the CBN was mopping up so-called excess liquidity with the right hand, it continued to grant Ways and Means advances to the government with the left hand without any let up!
The resultant effects have been an inflationary spiral and rising interest rates that ratcheted up bank lending rates beyond the reach of the very SMEs that ought to be driving employment generation and income creation. By its unbridled pandering to the funding requests of the government, the apex bank was actually the principal villain fostering financial instability – the very opposite of its core mandate of “promoting monetary stability as well as a sound and efficient financial structure in Nigeria”!
The debt service cost of the government’s debt has become a bottleneck to the nation’s development and progress. The Minister of Finance, Budget and National Planning in the Buhari administration, Zainab Ahmed, disclosed that restructuring and securitization of the Ways and Means advances would cost the nation N1.8 trillion in interest, at the time she was making a case for such. But the World Bank in its December 2022 edition of the Nigeria Development Update projected that interest payments will gulp 62% of government revenues by 2027 even if restructured!
From all available evidence, Emefiele and his team arbitrarily contravened the statutory guardrail provisions of the Act with monstrous impunity. Contrary to its contingency nature, the Ways and Means advances transformed into a permanent source of deficit financing. They not only continued to grant advances to the government while the previous ones hadn’t been paid off, but kept disbursing amounts far in excess of the specified 5% ceiling.
A case in point is the first six months of 2022 within which they granted Ways and Means advances amounting to N2.5 trillion, while the government’s actual revenue in 2021 was N5.4 trillion – 50% compared with the statutory 5%! It would also be interesting to ascertain whether the CBN charged the government any interest on the advances as demanded by the Act.
The National Assembly pushed back when the Buhari administration sought its approval in December 2022 to restructure the outstanding balance of N23.8 trillion into trade-able securities – and very rightly so. The illegality of the borrowing cannot be legitimized by converting the outstanding loans to trade-able securities as it would amount to a despicable form of money laundering.
Still, Emefiele shouldn’t bear the brunt of the perfidious act alone. The Senate and House of Representatives Banking and Finance Committees with oversight responsibility over the CBN have been ball-watching for so long. Why can’t members use part of the stupendous funds floating around to recruit aides who really know their onions?
The effectiveness of an oversight function is directly correlated with the capacity of those involved. The Senate President and House Speaker must therefore ensure that they place round pegs to oversee round holes and not just haphazardly appoint daft cronies in furtherance of a reward system that can only be described as a case of “garbage in, garbage out.”
And without prejudice to the cases Emefiele is currently facing in the Court, the National Assembly must commence an all-embracing investigation into the sickening manner in which Ways and Means advances have been used to ruin the economy, and all guilty parties must be brought to book. They would certainly find the findings of the ongoing investigation into CBN operations by Jim Obazee to be very illuminating.
Cardoso has fortunately announced his intention to toe a different path. Rather than the abused and misused Ways and Means advances, he has pledged to majorly rely on Open Market Operations (OMO) which represents a far more professional and transparent route. President Tinubu has also declared the committal of his administration to grow a $1 trillion economy over the next few years. All hands must be on deck to see this happen so we can clear all outstanding domestic and foreign debts and restart on a clean slate.
Although Cardoso was a key member of the original Primrose Group founded by Tinubu and served as his Commissioner for Budget and Economic Planning for a while, the Cardoso I’ve known since our days at Chase/Continental Merchant Bank in the mid-80s is very independent minded and won’t fail Nigerians.
