In a significant move that has sparked controversy and raised questions about the government’s fiscal management, the Central Bank of Nigeria (CBN) has reaffirmed its commitment to a 5% threshold for Ways and Means Advances to the federal government. This decision directly contradicts a recent bill passed by the National Assembly, which sought to increase the limit to 10% of the revenue of a fiscal year.
The CBN’s stance was outlined in its Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for Fiscal Years 2024-2025, released recently. According to the guidelines, the apex bank can advance up to 5% of the previous year’s actual collected revenue to the Federal Government, which must be repaid within the year to prevent a long-term fiscal burden.
The CBN’s Rationale
The CBN justified its decision by emphasizing the importance of maintaining fiscal discipline and avoiding excessive government borrowing. The bank argued that exceeding the 5% limit could lead to inflationary pressures and undermine the stability of the Nigerian economy.
“Ways and Means Advances shall continue to be available to the Federal Government to finance deficits in its budgetary operations to a maximum of 5.0 per cent of the previous year’s actual collected revenue,” the CBN stated in its guidelines. “Such advances shall be liquidated as soon as possible and shall in any event be repayable at the end of the year in which it was granted.”
National Assembly’s Push
The National Assembly’s attempt to increase the Ways and Means Advances limit was driven by a desire to provide the federal government with more flexibility in managing its finances. Proponents of the bill argued that the 5% cap was too restrictive and hindered the government’s ability to implement essential development programs.
However, the CBN’s decision has effectively nullified the National Assembly’s efforts. The apex bank’s authority in monetary policy matters is well-established, and its refusal to grant additional Ways and Means Advances is a clear assertion of its control over the government’s finances.
Controversial History of Ways and Means Advances
Ways and Means Advances are short-term loans provided by the CBN to the federal government to bridge temporary funding gaps. They are intended to be repaid within a short period, typically a year. However, in recent years, the federal government has increasingly relied on these advances to finance its recurrent expenditures, leading to concerns about their sustainability.
In the past, it has been criticized for its potential for abuse and misuse. Concerns have been raised about the transparency of the borrowing process and the accountability of government officials in managing the funds.
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In May 2023, the Senate approved a request from the then-President Muhammadu Buhari to restructure the N22.7 trillion in Ways and Means loans that the CBN had extended to the federal government. This move sparked widespread criticism and accusations of government irresponsibility.
CBN’s Efforts to Reduce Dependence on Ways and Means
The CBN has been taking steps to reduce the federal government’s reliance on Ways and Means Advances. In recent years, the bank has encouraged the government to explore alternative sources of financing, such as domestic and international capital markets.
Implications for the Nigerian Economy
The CBN’s decision to maintain the 5% limit for Ways and Means Advances has significant implications for the Nigerian economy. It could impact the government’s ability to implement its development plans and could lead to increased pressure on public services.
On the other hand, the decision could also have positive consequences. By limiting government borrowing, the CBN may be able to help stabilize inflation and prevent the economy from overheating.
If You Ask Me
The CBN’s rejection of the National Assembly’s bill to increase Ways and Means Advances is a major development with far-reaching implications. While the decision may have short-term consequences for the government’s finances, it could also have long-term benefits for the Nigerian economy.
As the country continues to navigate economic challenges, the CBN’s role in maintaining fiscal discipline and promoting economic stability will be increasingly important. The apex bank’s decision to reaffirm its commitment to a 5% threshold for Ways and Means Advances is a clear signal of its determination to prioritize sound economic management.
