The Central Bank of Nigeria (CBN), has awarded a total borrowing of N2.45 trillion to the Federal Government.
Under its Ways and Means Advances, CBN issued the loan to the President Muhammadu Buhari-led government between January and June 2022.
BizWatch Nigeria understands that Ways and Means Advances is a loan facility through which the apex bank finances the shortfalls in the government’s budget.
According to Section 38 of the CBN Act, 2007, the central 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 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,” the Act read.
However, while the N19.91 trillion owed to CBN by the Federal Government is not part of the country’s total public debt stock, which stood at N41.60 trillion as of March, the apex bank expressed worry that borrowing under its Ways and Means Advances could have adverse effects on the bank’s monetary policy.
CBN as well expressed fear that it could have detrimental consequences on 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,” it said.
