Nigerian Govt Pays N405bn Interest On CBN Loans

Written by on August 3, 2022

The Federal Government paid an interest of N405.93bn from January 2022 to April 2022 on the loans it got from the Central Bank of Nigeria through the Ways and Means Advances.

This is according to data obtained from the government’s Medium-Term Expenditure Framework and Fiscal Strategy Paper 2023-2025.

Ways and Means Advances is a loan facility used by the central bank to finance the government in periods of temporary budget shortfalls subject to limits imposed by law.

However, there was no budgetary allocation for it in the 2022 budget.

Previously, the Federal Government spent N912.57bn in 2020 and N1.12tn from January to November last year on interest on Ways and Means Advances, despite the lack of budgetary allocation for it in the budgets.

The CBN 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.

The World Bank, in November last year, warned the Nigerian government against financing deficits by borrowing from the CBN through the Ways and Means Advances, saying this often put fiscal pressures on the country’s expenditures.

According to the bank, the CBN financing and the fuel subsidy tended to adversely affect investments in human and physical capital.

It said that the government had always under-budgeted for debt service as the government failed to consider 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 over the Federal Government’s repeated recourse to its ways and means facility with the central bank.

The agency said that using central bank financing in Nigeria could raise risks to macro-stability in the context of weak institutional safeguards that preserved the credibility of policymaking and the ability of the central bank to control inflation.

(Punchng)


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