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CBN Breaks Own Rules in ‘Ways and Means’ Advances to FG

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The Central Bank of Nigeria (CBN) is breaking its own rules regarding Ways and Means Advances extended to the Federal Government (FG), MoneyCentral analysis shows.

Ways and Means financing is basically the printing of money by the CBN to enable the FG plug its budget deficit.

The CBN in a draft Monetary, Credit, Foreign Trade, and Exchange policy set of guidelines released on Friday September 11, indicated in section 3.2.15, that Ways and Means Advances shall continue to be available to the Federal Government, to finance deficits in its budgetary operations to a maximum of 5.0 per cent of the previous year’s actual collected revenue.

This is expected to continue in the 2020/2021 fiscal years, according to the guidelines.

However, the interest payments by the FG on Ways and Means financing hit N219 billion in the First Quarter (Q1) of 2020, according to data from the 2020 – 2022 Medium Term Expenditure Framework and Fiscal Strategy of the Federal Government, prepared by the Federal Ministry of Finance, Budget and National planning.

It also shows that the FGs retained revenues was N950.56 billion in Q1, a 52 percent shortfall compared to budgeted estimates.

Assuming a strict 5 percent of an annualized Q1 Federal Government revenues (N3.8 trillion) is applied as given in the guidelines, it means that the CBN should extend no more than N190 billion to the FG this fiscal year.

With interest payments already exceeding the total estimated allowable borrowings it means that the CBN is exceeding its mandate.

In any case the CBN guidelines note that any such Ways and Means advances are expected to be liquidated as soon as possible, and shall be repayable at the end of the year in which it was granted, meaning no carryover from a previous year is anticipated by the law.

Consistent with the banking arrangement of Treasury Single Account (TSA), Ways and Means Advances would now be determined after recognizing the subaccounts of the various MDAs, which are now linked to the Consolidated Revenue Fund (CRF) to arrive at the FGN consolidated cash position.

The CBN’s net financing to the Federal government stood at N4.4 trillion as at August 2019 from less than N400 billion in December 2018, according to most recent available CBN data.

The N4.4 trillion net loans to the Federal Government (August 2019), is the net sum of outstanding CBN overdrafts to the FG minus the government’s treasury single accounts (TSA) deposits with the CBN.

Printing so much money and lending it to the federal government is also a violation of the Central Bank Act of 2007 (Section 38.2).

Since 2015, when President Muhammadu Buhari first assumed office, the total amount of money borrowed from the CBN (Ways and Means) to meet fiscal obligation has surged astronomically.

In 2014, borrowing by the Federal Government stood at N922 billion. This later surged to N2.5 trillion in 2015, N5.21 trillion in 2016, N5.87 trillion in 2017, and a whopping N8.12 trillion in 2018.

Analysts say that such money printing or financing of the FG by the CBN has the effect of debasing the local currency the naira, and could spark hyper-inflation.

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