The Central Bank of Nigeria (CBN) has said its loan to the Federal Government has risen from N20.61tn in July 2022 to N22.07tn in August 2022.
According to data from the CBN, the apex bank said the Muhammadu Buhari government borrowed N1.46tn through Ways and Means Advances in August 2022.
OsunDaily News reports that Ways and Means Advances is a loan facility through which the CBN finances the shortfalls in the government’s budget.
The CBN stated that the government borrowed a total of N4.61tn from the apex bank between January and August.
However, the CBN has said on its website that the Federal Government’s 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 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.
According to Section 38 of the CBN Act, 2007, the apex 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 Act read in part, “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 World Bank had, in November last year, warned the Nigerian government against financing deficits by borrowing from the CBN through the Ways and Means Advances, saying this put fiscal pressures on the country’s expenditures.
Despite warnings from experts and organisations, the Federal Government has kept borrowing from the CBN to fund budget deficits.
This article was originally published on OsunDaily News
