the The Federal Government paid N2.03 billion in interest from January 2020 to November 2021 on loans it obtained from the Central Bank of Nigeria through the Ways and Means Advances, according to official data.
Ways and Means Advances are a loan facility used by the central bank to finance the government in times of temporary budget deficits subject to limits imposed by law.
Data obtained from the government’s Medium Term Expenditure Framework and Fiscal Strategy Paper 2022-2024 shows that N912.57 billion was spent on interest payments on Ways and Means Advances in 2020, although that there was no budget allocation for this in the 2020 budget.
The federal government spent N1.12 billion in interest on Ways and Means advances from January to November last year, Finance, Budget and National Planning Minister Zainab Ahmed said during of the public presentation of the approved budget for 2022, although there was no budget allocation for this in the 2021 budget.
The CBN has stated on its website that federal government borrowing from it through the Ways and Means advances could have adverse effects on the bank’s monetary policy to the detriment of domestic prices and exchange rates. .
“The direct consequence of central bank financing of deficits are distortions or increases in the monetary base leading to negative effects on domestic prices and exchange rates, i.e. macroeconomic instability due to the excess cash that has been pumped into the economy,” he said.
The World Bank had in November last year warned the Nigerian government of funding shortfalls by borrowing from the CBN through the Ways and Means Advances, saying it was putting budgetary pressures on the country’s spending. .
According to the bank, CBN financing and the fuel subsidy tend to undermine investment in human and physical capital.
He said the government had always under-budgeted debt service because the government had not included the cost of ways and means financing in its debt service allocation.
A global credit rating agency, Fitch Ratings, had in January 2021 raised concerns about the federal government’s repeated use of its ways and means facility with the central bank.
The agency said the use of central bank financing in Nigeria could increase risks to macroeconomic stability amid weak institutional safeguards that preserve policy-making credibility and the central bank’s ability to deliver. control inflation.
The PUNCH had exclusively reported on August 18, 2021 that total federal government borrowing from the CBN through Ways and Means advances had soared to N15.51 billion, rising 2,286% in six years, according to CBN data.
The 15.51 billion naira owed by the federal government to the central bank in June 2021 is not part of the country’s total outstanding public debt, which stood at 38 billion naira in September 2021.
However, the DMO said recently that it is working on the process of restructuring CBN overdrafts for public funding of long-term debt.
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