The Central Bank of Nigeria (CBN) has announced the cessation of its practice of extending loans to the federal government through its Ways and Means advances program. This decision comes in response to the government’s failure to repay its outstanding debt,Daily Trust reports.
CBN Governor, Olayemi Cardoso, conveyed this decision during an interactive session with the Senate Committee on Banking, Insurance, and other Financial Institutions. Also present were the Minister of Finance and Coordinating Minister for the Economy, Olawale Edun, the Minister of Budget and National Planning, Atiku Bagudu, and the Minister of Agriculture, Abubakar Kyari.
The Ways and Means program provides a loan facility to the federal government to cover budget shortfalls. However, it has been a topic of debate, with concerns raised by experts over the CBN surpassing its lending limits to the government, violating existing laws.
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As of June 2023, the federal government’s borrowing from the CBN amounted to N4.36 trillion. This figure exceeds five percent of the government’s revenue for 2023, as mandated by the CBN Act.
Between July and December 2023, the federal government accessed a significant N2.94 trillion from the CBN. In December 2023, the parliament approved a presidential request to formalize the securitization of CBN’s N7.3 trillion Ways and Means advances to the federal government.
The CBN governor announced that lending to the federal government through this program would cease until the outstanding balance is settled, in compliance with Section (38) of the CBN Act (2007).
Cardoso emphasized that settling the outstanding balance of the Ways and Means advances would help control inflation. Furthermore, he highlighted the CBN’s discontinuation of quasi-fiscal measures, amounting to over 10 trillion naira, which had contributed to excess Naira liquidity and inflationary pressures.
The CBN’s shift towards an inflation-targeting framework involves close collaboration with fiscal authorities to achieve price stability. The Monetary Policy Committee (MPC) meeting scheduled for February 26th and 27th will further deliberate on these issues.
Inflationary pressures are anticipated to ease in 2024 due to the CBN’s inflation-targeting policy, aiming to reduce inflation to 21.4 percent in the medium term, supported by enhanced agricultural productivity and global supply chain improvements.
