The Central Bank of Nigeria (CBN), in August 2022, extended N22 trillion in loans to the federal government under its Ways and Means provision as included in the CBN Act.
The Ways and Means clause permits the government to borrow money from the Apex Bank in an emergency or for a short period of time to cover fiscal imbalances caused by the delayed government-expected financial receipts.
The statute has provisions that limit monetary financing of fiscal deficits to 5 per cent of revenues from the previous year.
With the country’s revenue collection dwindling and oil theft preventing the country from capitalizing on the high oil price, the Central Bank of Nigeria’s Ways and Means window may be the main option for the Federal Government to fund the N10.78 trillion deficit in the 2023 budget.
What you should know
The data shows that the Ways and Means balance was N16.1 trillion in August 2021 but has already climbed to N22.068 trillion in August 2022. This represents a 36 per cent increase year on year.
The CBN has now extended to the federal government a total of N4.76 trillion (year to date). The increase in CBN ways and means represents a 35 per cent year-to-date gain.
The CBN lent the government a total of N4.34 trillion in 2021, up from N4.38 trillion in 2020, as government revenues were ravaged by the Covid-19 outbreak and its concomitant effect on oil income.
The Ways and Means of the Central Bank have been rising because the Federal Government has not been able to meet its revenue projections. Nonetheless, the situation is compounded when government maintains budget deficits with dwindling revenue.
Buhari proposed an annual budget of N20.51 trillion for the year 2023, a 19.8 per cent increase when compared to the N17.13 trillion approved for 2022 including the supplementary budget.
According to the 2023 appropriation bill, total revenue available to fund the budget for the year was estimated at N9.73 trillion, leaving a deficit of N10.78 trillion, representing 4.78 per cent of the nation’s GDP and higher than the 3 per cent threshold set by the Fiscal Responsibility Act 2007.
Given the economic realities of Nigeria’s budget deficit and the bullish momentum of the ways and means data, the CBN’s ways and means may be the preferred alternative for financing the federal government’s budget deficit, implying that we would see greater figures in the coming months.