Between January 2020 and November 2021, the federal government (FG) paid no less than N2.03 trillion as interest on the loans it secured from the Central Bank of Nigeria (CBN).
Official data has it that the credit facilities were secured through the apex bank’s Ways and Means Advances, and were used to finance the government in periods of temporary budget shortfalls subject to limits imposed by law.
Data obtained from the government’s Medium-Term Expenditure Framework and Fiscal Strategy Paper 2022-2024 show N912.57 billion were spent on the payments of interest on Ways and Means Advances in 2020, although there was no budgetary allocation for it in the 2020 budget.
Addressing stakeholders at the public presentation of the approved 2022 budget, the Minister of Finance, Budget and National Planning, Zainab Ahmed revealed that even though there was no budgetary allocation for it in the 2021 budget, the President Muhammadu Buhari-led government ended up spending N1.12 trillion from January to November of the same year.
The apex bank, however, warned that the FG’s borrowings through its Ways and Means Advances may have negative effects on its monetary policy.
“The direct consequence of central banks’ financing of deficits are distortions or surges in monetary base leading to an adverse effect on domestic prices and exchange rates i.e macroeconomic instability because of excess liquidity that has been injected into the economy,” CBN stated on its website.
Having studied how the Buhari administration often rushes to the CBN to finance deficits by borrowings, the World Bank had warned that such a move is unhealthy for the economy, as it put financial pressures on the country’s expenditures.
While lamenting that the incumbent government had always under-budgeted for debt service as the government failed to consider the cost of ways and means financing in its debt service allocation, the World Bank noted that its approach to addressing deficits adversely affects investments in human and physical capital.
