The level of Ways and Means loans extended by the Central Bank of Nigeria (CBN) to the Federal Government (FG) stood at N16.1 trillion as at September 2021, according to data from investment firm Afrinvest.
“Repeated recourse to large central bank financing could complicate macroeconomic management and hinder the central bank’s ability to tame inflation, particularly if it exceeds limits set under existing institutional safeguards, in our view,” Fitch said in a note released in March.
The government has plans to securitise the loans it contracted under CBN’s Ways and Means (W&M) facility in recent years.
The debt will be exchanged for 30-year notes issued to the central bank, Patience Oniha, head of the Debt Management Office (DMO) said in February.
The Nigerian government became dependent on central bank borrowing after oil prices collapsed in 2015. Earnings from crude sales account for about half of government income in Africa’s largest economy. The financing helped plug spending shortfalls as non-oil revenues failed to cover the gap created by lower earnings from crude exports.
The increasing reliance on CBN overdrafts has come with negative consequences, the International Monetary Fund said.
“The financing is costly for the federal government at interest rates of the monetary policy rate plus 300 basis points, and for the CBN, with sterilization done through issuance of open market operation bills,” the IMF said.
Finance Minister Zainab Ahmed and central bank Governor Godwin Emefiele last year agreed to end CBN overdrafts to the government by 2025 in a letter of intent to the IMF before the release of emergency financing.
However, Emefiele defended the practice, saying it would be irresponsible not to finance the government when revenues drop.