The governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, has declared that the apex bank would no longer extend Ways and Means advances to the federal government until the outstanding balance is settled.
This declaration came during a high-profile interface with the Senate Committee on Banking, Insurance, and Other Financial Institutions, attended by key figures including Sani Abdullahi, CBN Deputy Governor of Economic Policy, and various ministers including Wale Edun, Atiku Bagudu, Abubakar Kyari, and Aliyu Abdullahi.
Ways and Means, a loan facility utilized by the Central Bank of Nigeria to cover the federal government’s budget shortfalls, has long been a subject of scrutiny and concern.
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Under the former CBN governor, Godwin Emefiele, the federal government borrowed a whopping N23 trillion through Ways and Means in violation of the CBN Act that prohibits it from lending more than 5% of the government’s previous year’s revenue.
The Ways and Means loan, which has been fingered as a major contributor to Nigeria’s high inflation, became a subject of controversy. The magnitude of the financial arrangement was highlighted in March 2022 when the Debt Management Office (DMO) revealed that the federal government had borrowed a staggering N18.16 trillion from the Central Bank, sparking public outcry and economic unease.
The National Assembly approved in December 2023 the securitization of the outstanding debit balance of N7.3 trillion. However, the federal government is desperately looking for funds to finance the 2024 budget among other things. The budget is projected to have an N9.18 trillion deficit.
Cardoso said the federal government must settle its outstanding debts, citing compliance with Section 38 of the CBN Act (2007) as the guiding principle.
He said, “The Bank must strictly adhere to the law limiting advances under ways and means to 5 percent of the previous year’s revenue.”
He further noted that failure to comply not only contravenes regulatory mandates but also hampers the CBN’s ability to effectively manage inflationary pressures in the economy.
Addressing the broader economic implications, Cardoso asserted that settling the outstanding balance of the Ways and Means advances would play a pivotal role in controlling inflation, a persistent challenge in Nigeria’s economy. Furthermore, he disclosed that the CBN had ceased quasi-fiscal measures amounting to over N10 trillion, actions previously undertaken under the guise of development finance interventions.
These measures, while intended to stimulate economic growth, inadvertently contributed to excess liquidity and exacerbated inflationary pressures.
However, Cardoso stopped short of confirming whether the federal government had exceeded the prescribed limits for advances under the CBN Act. He said that the impending Monetary Policy Committee (MPC) meeting scheduled for February 26th and 27th may delve deeper into these critical issues and chart a course of action to safeguard economic stability.
The apex bank head emphasized the importance of adopting an inflation-targeting framework, advocating for clear communication and collaboration between the CBN and fiscal authorities. Such collaborative efforts, he asserted, could pave the way for lowered policy rates, increased investment, and the creation of job opportunities, fostering sustainable economic growth and stability.
Cardoso’s stance on Ways and Means advances heralds a new era of fiscal discipline and regulatory oversight for the central bank, signaling a shift from his successor’s total disregard for the CBN Act and a commitment to upholding the rule of law.