The Central Bank of Nigeria (CBN) net overdrafts extended to the Federal Government (FG) surged to N2.44 trillion at the end of 2019 as budgeted revenues by the Government failed to materialize.
MoneyCentral calculated the net overdrafts as the total outstanding CBN overdrafts to the FG minus the government’s deposits with the CBN.
Total Overdrafts to the FG stood at N9.04 trillion at the end of 2019, while FG deposits were equivalent to N6.6 trillion at the end of last year, according to the latest CBN statistical bulletin data analyzed by MoneyCentral.
Net Overdrafts by the CBN to the FG have been rising drastically over the past year.
In March 2019 the FG had a net surplus of N196 billion as deposits with the CBN of N6.13 trillion covered all overdrafts of N5.94 trillion for the period.
By June 2019 however, the surplus had evaporated as deposits stood at N6.86 trillion while overdrafts to the FG was N6.8 trillion the data shows.
In September 2019 net overdrafts rose to N1.6 trillion with total FG deposits of N5.9 trillion and total overdrafts to the FG by the CBN of N7.5 trillion.
The FG has failed to meet its targeted revenues in its budget for each of the past 4 years and the overdrafts went into plugging the deficit.
The International Monetary Fund (IMF) has however warned that pumping so much liquidity into the market has negative implications for the exchange rate and financial system stability.
“A monetary policy that avoids direct financing of the government…would help reduce macroeconomic vulnerabilities and create an environment for a diversified private-sector led economy,” the IMF said.
Huge monetary financing of the fiscal deficit crowds out the private sector, and can lead to financial repression.
Lending so much money to the FG also violates the CBN’s own rule, the Central Bank Act of 2007 (Section 38.2) which caps advances to the FGN at 5 per cent of the previous year’s revenues.
The data shows that in 2006 total CBN claims on the Federal Government stood at N652 billion. This later surged to N5.2 trillion in 2016, N5.87 trillion in 2017, and a mammoth N7.12 trillion at the end of 2018 and N11.65 trillion at the end of 2019.