According to the Central Bank of Nigeria (CBN), it has stopped lending money to the federal government under its Ways and Means program. The Governor of the CBN, Olayemi Cardoso, stated that the government’s inability to pay off its outstanding debt was the reason behind the decision.
At an interactive session with the Senate Committee on Banking, Insurance, and Other Financial Institutions on Friday, Cardoso made this statement alongside Olawale Edun, the Minister of Finance and Coordinating Minister for the Economy, Atiku Bagudu, the Minister of Budget and National Planning, and Abubakar Kyari, the Minister of Agriculture.
The CBN provides the federal government with a lending facility called Ways & Means to help cover budget gaps.
The loan facility has generated controversy, with analysts worried that CBN had broken existing laws by giving more to the federal government than it was supposed to.
As of June 2023, the federal government was borrowing N4.36 trillion from the CBN, one month after former President Muhammadu Buhari packaged N22.7 trillion in loans from the central bank.
In violation of the CBN Act, the outstanding debt of N4.36 trillion is considerably more than 5% of the federal government’s projected revenue of N8.8 trillion for 2023.
The CBN was accessed by the federal government for a hefty N2.94 trillion between July and December of 2023.
The parliament granted the president’s proposal in December 2023 to securitize CBN’s N7.3 trillion Ways and Means advances to the federal government.
The governor of the apex bank declared that until the unpaid debt is paid, the loan to the federal government would cease. According to Cardoso, this complied with CBN Act (2007) Section (38).
Cardoso said that inflation will be contained by paying off the remaining balance of the Ways and Means.
“I am happy to note the Fiscal Authorities’ efforts in stopping ways and means advances,” he remarked. Additionally, this complies with CBN Act of 2007 Section (38) which states that the Bank cannot continue to advance ways and means to the Federal Government until the outstanding balance as of December 31, 2023, is entirely settled. The law restricting advances under ways and means to five percent of revenue from the prior year must be rigorously followed by the Bank.
We also stopped the Central Bank of Nigeria’s quasi-fiscal measures worth over 10 trillion naira under the guise of development finance interventions, which previously helped to flood excess Naira and raise prices to the levels of inflation we are currently dealing with. As a result, we are no longer at liberty to grant further grants.
In order to achieve price stability, the CBN adopted an inflation-targeting framework that calls for open communication and cooperation with fiscal authorities. This might result in lowering policy rates, increased investment, and the creation of jobs.
Reviewing the situation and making more choices on these crucial problems are also anticipated outcomes of our MPC meeting on February 26 and 27.
“The CBN’s inflation-targeting policy, which aims to reign in inflation to 21.4 percent at the medium term, is expected to relieve global supply chain pressures and improve agricultural productivity, contributing to a decline in inflationary pressures in 2024.”