Nigeria: CBN maintains 5% ways and means advances to govt

The Central Bank of Nigeria (CBN) has confirmed that it will maintain its Ways and Means Advances to the Federal Government at a five percent cap for the fiscal years 2024-2025. This decision was outlined in the Monetary, Credit, Foreign Trade, and Exchange Policy Guidelines for the period, released by the CBN on Tuesday.

This policy direction contrasts with a recent bill passed by the National Assembly, which sought to raise the borrowing cap from five percent to ten percent. However, the CBN has reiterated its commitment to the lower limit, allowing advances of up to five percent of the previous year’s actual collected revenue. These advances must be repaid within the same fiscal year to prevent long-term fiscal imbalances.

The guideline aligns with the government’s Medium-Term Fiscal Framework (MTFF), focusing on managing economic expectations, responding to shocks, and ensuring macroeconomic stability during the ongoing recovery phase. According to the CBN’s policy document, “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 percent 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.”

Additionally, the CBN emphasized that its advances would now be calculated after considering the sub-accounts of various Ministries, Departments, and Agencies (MDAs), which are linked to the Consolidated Revenue Fund. This consolidation will help assess the Federal Government’s overall cash position more accurately. “Consistent with the banking arrangement of the Treasury Single Account, Ways and Means Advances would now be determined after recognizing the sub-accounts of the various MDAs, which are now linked to the Consolidated Revenue Fund,” the CBN noted.

The Ways and Means Advances facility allows the CBN to lend to the government during temporary budgetary shortfalls, within limits set by law. Section 38 of the CBN Act of 2007 permits the bank to grant temporary advances to the Federal Government to cover budgetary deficiencies, with the interest rate determined by the apex bank.

In 2023, significant controversy surrounded the use of Ways and Means, as the former CBN Governor, Godwin Emefiele, allegedly printed ₦22.7 trillion for the government under former President Muhammadu Buhari, without legislative approval. Experts argued that this contributed to high inflation and excessive liquidity in the economy.

At a Senate Committee meeting in February 2024, the current CBN Governor, Olayemi Cardoso, announced that the central bank would cease issuing new Ways and Means Advances until the previous loans were fully repaid. This decision is part of broader efforts by the CBN to address Nigeria’s economic challenges.

Finance Minister Wale Edun also confirmed that the Federal Government had repaid ₦7.3 trillion of the outstanding Ways and Means loans to the CBN.

In the same 218-page policy document, the CBN identified potential challenges for the 2024-2025 fiscal years. The removal of fuel subsidies, increased external debt servicing obligations, and lower import bills could pose risks to the country’s external reserves during this period.