Nigeria may likely be spending about N5 trillion annually from next year servicing the N22.7 trillion Central Bank of Nigeria (CBN) Ways and Means advances to the Federal government.
Nigeria’s current total debt stock is N46.25 trillion with an annual debt servicing obligations that is as high as 80 percent of the annual revenue.
President Muhammadu Buhari had in December last year requested the National Assembly to approve the conversion of the ways and means advances to a 40 years bond. However, the lawmakers refused to grant the approval, demanding more details from the executive.
With barely four weeks to the end of this administration, it is still not clear how much of the requested details the executive has provided so far to enable the legislature which also has less than two months, to do its job.
Besides that, section 8 sub-sections 3 and 4 of the CBN Act specifically state that you cannot convert advances and overdrafts issued through Ways and Means to government bonds, certificates and bills as a mode of repayments of government’s debts.
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.
Since the government started experiencing a significant shortfall in revenue, it has relied heavily on the central bank to finance its expenditure programmes via Ways and Means which balance as of December, 2022 stood at N22.7 trillion.
One of the provisions of the CBN Act, 2007 mandates that in the event of a revenue shortfall, the CBN must not lend to the Federal Government an amount more than five percent of the previous year’s revenue of the government.
That section of the CBN Act is aimed at preventing the overreliance of the federal government on CBN financing, instead of opening up the economy to boost domestic investments as well as attract foreign direct investments.
Section 38 of the CBN Act states: “Notwithstanding the provisions of the section 34(d) of this Act, the Bank (CBN) may grant temporary advances to the Federal Government in respect of temporary deficiency of budget revenue at such rate as the Bank may determine. The total amount of such advances outstanding shall not at any time exceed five (5) percent 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.”
The CBN did not only flaunt its own rule of ensuring that repayment of the advances was made at the end of the financial year, it also learnt above the five percent threshold.
Available data show that federal government’s retained revenue in 2015 stood at N3.43 trillion, meaning that in 2016, CBN’s total lending through its Ways and Means to the federal government in 2016 should not have exceeded N171.55 billion. In 2016, Federal government’s total revenue was N3.18 trillion which put a limit to CBN’s lending to the government in 2017 at N159.24 billion.
In 2018, CBN’s lending to the government should have been N142.37 billion, considering the total retained revenue of N2.85 trillion in the previous year. In 2019, the CBN should not have lent more than N209.28 billion to the government. CBN’s lending to the FGN should have been at maximum N240.05 billion in 2020, and N201.24 billion in 2021. This would have brought the total lending of the CBN to the federal government to N1.12 trillion from 2016 to 2021.
But that has not been the case, for instance, in 2020, according to available data, CBN’s loans to the government amounted to N4.389 trillion, in 2021, another N932.6 billion was lent to the government which means that in two fiscal years, the FGN obtained N5.32 trillion from the CBN.
President Muhammadu Buhari while signing the 2023 budget had called on the National Assembly to reconsider its position on his proposal to securitise the Federal Government’s outstanding Ways and Means Advances.
According to him, “As I stated, the balance has accumulated over several years and represents funding provided by the CBN as lender of last resort to the government to enable it to meet obligations to lenders, as well as cover budgetary shortfalls in projected revenues and/or borrowings.
“Failure to grant the securitization approval will however cost the government about N1.8 trillion in additional interest in 2023 given the differential between the applicable interest rates which is currently MPR plus 3% and the negotiated interest rate of 9% and a 40year repayment period on the securitised debt of the Ways and Means.”
He however said, “I have no intention to fetter the right of the National Assembly to interrogate the composition of this balance, which can still be done even after granting the requested approval.”
But Senate President, Ahmed Lawan while answering questions from reporters, said: “We are already considering the proposal, but let me tell you where the problem is. While we are trying to consider and pass the request, we will insist on getting the right documents for our committees to ensure that whatever they advise us to do in the two chambers are based on information and knowledge and not just passing ways and means without knowing what it is.”
In the event that the National Assembly fails to grant the request, what options are there for the federal government?
An economic analyst, Professor Seye Adetunbi said that every form of public debt management has its drawbacks. He noted that the negative pinnings could be more pronounced in a place like Nigeria, characterized by fiscal indiscipline, high cost of governance, endemic corruption, and irresponsible leakages in the system.
“Thus, a 40-year bond would amount to mortgaging the future of Nigerians considering the bad reputation of the successive political leadership over the years on the misuse of the commonwealth and other government resources,” he said, adding, “In the event that the National Assembly doesn’t approve the bond, then the government would be left with no option than to cut down the cost of governance, avoid white elephant projects, and reckless spending.
“If the government is seen as being accountable, consistently disciplined, and improving in the quality of life of the masses, it should make raising of taxes justifiable and effective in managing the finances of the government.”
Corroborating Prof. Adetunbi’s position, Lead Director Centre for Social Justice (CSJ), Eze Onyekpere said, “Evidently, restructuring the ways and means to a longer maturing bond is illegal and against the provisions of the Fiscal Responsibility Act.
“However, it appears the most prudent solution in the circumstances considering our revenue to debt ratio. But the National Assembly should insist on getting the details of the expenditure and give necessary fiscal directions to secure the sanctity of the fiscal process.”
He said part of the directives is to ensure that going forward, no new ways and means is incurred without legislative approval. “Furthermore, if a fundamental breach of our laws amounting to a crime is revealed, prosecutions must follow against all who conspired and actively participated in the crime,” he concluded.
Also reacting, Professor Akpan Ekpo Akpan of the University of Uyo, Akwa-Ibom State told The Guardian on phone that the CBN violated its own rule of 5 percent of governmemt’s previous year revenue.
The Professor of Economics who was a CBN Board member and member, Monetary Policy Committee [MPC] between 2004 to 2009 said, ‘’You can restructure because you are in trouble now but the CBN must obey the rule or change the rule, its either you obey the existing rule or you amend it, right now, CBN has violated the rule as the Way and Means now stands at over 50 percent, this is what is fueling inflation’’
On his part, a development economist, Odili Enwagbara says the Fiscal Responsibility Act ought to have been followed in deciding the percent of Ways and Means to be granted to the Federal government.
According to him, “The Ways and Means, aught to be in the budget for the National Assembly to debate on it but what is happening in Nigeria is that the person that is supposed to implement the law, is now braking the law.”