Minister of Finance, Budget and National Planning, Zainab Ahmed
The Federal Government paid interests of N4.12tn between 2019 and 2022 on the loans it got from the Central Bank of Nigeria through Ways and Means Advances, according to findings by The PUNCH.
Data from the Medium-Term Expenditure Framework and Fiscal Strategy Papers and the public presentation documents of the approved budgets by the Ministry of Finance, Budget and National Planning.
An analysis by The PUNCH showed that in 2019, the interest paid on the CBN loans was N339.45bn.
The interest payments rose to N912.57bn in 2020 and N1.22tn in 2021.
For 2022, The PUNCH could only get data for January to November 2022, as the data for December 2022 was yet to be released as at the time of filing this story.
The PUNCH also observed that the interest payments hit N1.64tn in 2022, indicating the payments rose by 384.14 per cent between 2019 and 2022.
Despite the interest payments gulping a huge share of the Federal Government’s revenue, The PUNCH observed that there was no budgetary allocation for it each year.
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.
According to Section 38 of the CBN Act, 2007, the apex bank may grant temporary advances to the Federal Government with regard to temporary deficiency of budget revenue at such rate of interest as the bank may determine.
The Act read in part, “The total amount of such advances outstanding shall not at any time exceed five per cent 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.”
However, the CBN had said on its website that the Federal Government’s borrowing from it through the Ways and Means Advances could have adverse effects on the bank’s monetary policy to the detriment of domestic prices and exchange rates.
“The direct consequence of central banks’ financing of deficits are distortions or surges in the monetary base leading to adverse effects on domestic prices and exchange rates i.e macroeconomic instability because of excess liquidity that has been injected into the economy,” it said.
The World Bank had, in November 2021, warned the Nigerian government against financing deficits by borrowing from the CBN through the Ways and Means Advances, saying this put fiscal pressure on the country’s expenditures.
According to the bank, the CBN financing and the fuel subsidy tended to adversely affect investments in human and physical capital.
It said that the government had always under-budgeted for debt service as the government failed to consider the cost of ways and means financing in its debt service allocation.
A global credit rating agency, Fitch Ratings, had in January 2021, raised concerns over the Federal Government’s repeated recourse to its ways and means facility with the central bank.
The agency said that using central bank financing in Nigeria could raise risks to macro-stability in the context of weak institutional safeguards that preserved the credibility of policymaking and the ability of the central bank to control inflation.
Despite warnings from experts and organisations, the Federal Government has kept borrowing from the CBN to fund budget deficits.
The World Bank has projected that interest payments on the Federal Government’s borrowing from the Central Bank of Nigeria would gulp about 62 per cent of government revenue by 2027 despite the restructuring plan.
The Washington-based bank noted this in its December 2022 edition of the Nigeria Development Update recently released.
The PUNCH recently reported that the Federal Government borrowed N6.31tn from the CBN through Ways and Means Advances in 10 months.
This pushed the Federal Government’s borrowing from the CBN from N17.46tn in December 2021 to N23.77tn in October 2022.
The N23.77tn owed to the apex bank by the Federal Government is not part of the country’s total public debt stock, which stood at N44.06tn in the third quarter of 2022, according to the Debt Management Office.
The public debt stock only includes the debts of the Federal Government of Nigeria, the 36 state governments, and the Federal Capital Territory.
Meanwhile, last week, the President, Major General Muhammadu Buhari (retd.), transmitted to the National Assembly, a request for approval of Ways and Means Advances restructuring to the tune of N23.7tn.
However, the Senate rejected the request by the president to restructure the N23.7tn Ways and Means advances.
Buhari later warned that Nigeria would pay N1.8tn extra interest in 2023 if the National Assembly rejected a loan-to-bond swap request on the CBN overdrafts to the government.
Interest payments
The PUNCH further found out that the N4.12tn spent on paying interests on the loans obtained from the CBN almost doubled the N2.96tn budget for the education sector between 2019 and 2022.
An analysis by The PUNCH showed that the education sector budget was N620.50bn in 2019, N671.7bn in 2020, N742.52bn in 2021 and N923.79bn.
Findings by The PUNCH also showed that during the same period, the government budgeted N4.4tn for education amidst constant criticism by stakeholders, including the Academic Staff Union of Universities, about the low funding of the sector.
Commenting on the amount the government spent on debt servicing and low funding of education, experts, in separate interviews with The PUNCH, lamented that educational infrastructure was collapsing because of a shortage of funds.
They noted that the government failed to realise that education is the bedrock of national development.
A professor at the Adekunle Ajasin University, Akungba, Victor Olumekun, in an interview with The PUNCH, lamented the government had not focused on the education sector.
The Programme Director of Reform Education Nigeria, Ayodamola Oluwatoyin, said low funding of education might continue as the government might not make available enough funds to implement the budgets.
Oluwatoyin said, “It is one thing to budget a particular amount; it is another thing to provide the funds to ensure the implementation. The truth is that Nigeria is broke. We are spending a very high percentage of our revenue on debt servicing; this may prevent the government from actually releasing enough money to ensure implementation of the budget.”
Senate
In response to the short message sent to the Senate spokesperson, Senator Basiru Ajibola, by our correspondent, noted that the senate was not aware of such payment.
Also, efforts to get comments from the chairman, Senate Committee on Finance, Senator Solomon Adeola, could not be reached. All calls and text messages were neither answered nor replied.
Source PUNCH
