The Central Bank of Nigeria (CBN) has warned that the Federal Government’s rising borrowing from its Ways and Means Advances could have adverse effect on the bank’s monetary policy to the detriment of domestic prices and exchange rate.
This is coming after data from the apex bank revealed that the nation’s borrowing through Ways and Means Advances has risen from N17.46 trillion as of December 2021 to N19.01 trillion as of April 2022.
Ways and Means Advances are loan facilities through which the CBN finances government’s budget’s shortfalls.
According to the DMO, the figure represents an increase of N1.55 trillion within the first four months of 2022 and the N19.01 trillion owed to the apex bank by the Federal Government is not part of the country’s total public debt stock, now standing at N41.60 trillion as of March 2022.
According to the agency, Nigeria’s public debt stock only includes debts of the Federal Government of Nigeria, the 36 state governments and the Federal Capital Territory. Furthermore, Section 38 of the CBN Act, 2007, said the apex bank may grant temporary advances to the Federal Government in respect of temporary deficiency of budget revenue at such rate of interest as it may determine.
The Act said, “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.”
However, the CBN has on its website said the Federal Government’s borrowing from its 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 the monetary base leading to adverse effects on domestic prices and exchange rates i.e macroeconomic instability because of excess liquidity that has been injected into the economy,” it said.
Sunonline
