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“No more free money,” CBN warns FG over economic crisis



CBN bans foreign currency as collateral for naira loan

…as it intensifies fight against inflation, FX volatility


The Central Bank of Nigeria (CBN), is vigorously pursuing a target of bringing inflation rate down to 21.4 percent in 2024, through some bold steps also expected to strengthen the national currency in the foreign exchange market.

From the June 2023 rate of 22.79 percent, inflation accelerated to 28.99 per cent in December, while the naira is exchanging at around N1,500/$1 now, a staggering loss of value.

As a way to tackle excessive money supply, which accounts majorly for the erosion of purchasing power in the country, the CBN governor, Olayemi Cardoso, on Friday declared that the apex bank would no longer give Ways and Means to the Federal Government until the previous loans were repaid.

Ways and means is the money that the CBN lends to the Federal Government in the meantime to augment spending based on the time the revenue is generated.

CBN Ways and Means borrowing became not only a highly controversial and debatable financial instrument of the former Nigerian President, Muhammadu Buhari, but, according to some sources, heavily abused as it violated Section 38(2) of the CBN Act.

The CBN Act states that “the total amount of such advances outstanding shall not at anytime exceed five percent of the previous year’s actual revenue of the Federal Government.”

A report from Dataphyte revealed that Buhari exceeded the five percent limit, increasing Ways and Means from N856 billion to N23.8 trillion, marking a significant growth of 2,635 percent over a period of seven years.

According the Budget Office of the Federation (BOF), the Federal Government’s interest payment on Ways and Means debt to the CBN in the first half of 2023 surpassed the revenue it generated from crude oil.

The BOF report, titled “Medium Term Expenditure Framework and Fiscal Strategy Paper,” revealed that the CBN Ways and Means payment of N1.68 trillion exceeded the FG’s crude oil revenues of N813.58 billion, which is an excess of 107 percent over oil revenue.

The BOF explained that the FG’s debt service situation worsened due to the surge in Ways and Means payments, which increased by N966 billion from the first half of the year’s budgeted amount of N700 billion to N1.68 trillion, an amount that also exceeded the 2023 budgeted amount of N1.2 trillion by over N400 billion.

This component in the nation’s debt service account was single-handedly responsible for driving total debt services for the first half of the year by N109 billion, hitting N3.94 trillion in the process—an amount that exceeded the 2023 budgeted amount of N3.8 trillion.

However, a further examination of the account showed that other debt service components outside the Ways and Means payment saw significant decreases.

Foreign loan servicing decreased by 49 percent, or N528 billion, reaching N530 billion from the budgeted first-half amount of N1.06 trillion, while domestic debt service charges dropped by 11.1 percent, or N214 billion, settling at N1.7 trillion from the budgeted N1.9 trillion for the first half of 2023.

BOF said, “Debt service costs exceeded budget by N1.68 trillion, mainly due to interest on Ways and Means of N1.89 trillion and generally higher interest rates on borrowings.”


Adhering to the law

Addressing the Senate Committees on Finance, Appropriations, Banking, Insurance, and Other Financial Institutions on Friday, Cardoso stated that the CBN had responded with significant monetary policy tightening to reign in inflationary pressure.

He said: “Empirical analysis has established that money supply is one of the factors fueling the current inflationary pressure. For instance, an analysis of the trend of the money supply spanning over nine months shows that MS increased from N52.01tn in January 2023 to N68.25tn in November 2023, representing N16.24tn or 31.22 percent increase over the period.

“Increase in Net Foreign Asset following the harmonisation of exchange rates and the N3.22tn ways&means advances were the major factors driving the increase in the money supply.”

He further explained, “I am pleased to note the Fiscal Authorities efforts in discontinuing W&M advances. This is also in compliance with Section (38) of the CBN Act (2007), the Bank is no longer at liberty to grant further W&M advances to the Federal Government until the outstanding balance as of December 31, 2023, is fully settled.

“The bank must strictly adhere to the law limiting advances under ways and means to five percent of the previous year’s revenue. We have also halted quasi-fiscal measures of over N10tn by the Central Bank of Nigeria under the guise of development finance interventions, which hitherto contributed to flooding excess naira and raising prices to the levels of Inflation we are grappling with today.”

On efforts to tackle the free fall of the naira, he said, “The Nigerian foreign exchange market is currently facing increased demand pressures, causing a continuous decline in the value of the naira. Factors contributing to this situation include speculative forex demand, inadequate forex supply increased capital outflows, and excess liquidity.

“To address exchange rate volatility, a comprehensive strategy has been initiated to enhance liquidity in the FX markets. This includes unifying FX market segments, clearing outstanding FX obligations, introducing new operational mechanisms for BDCs and IMTOs, enforcing the Net Open Position limit, Open Market Operations and adjusting the remunerable Standing Deposit Facility cap among others.”

However, the Economic Intelligence Unit, the research and analysis division of the Economist Group, believes that the CBN does not have the required firepower to clear the backlog of foreign exchange orders.

“In Nigeria, an unsupportive monetary policy implies that the naira will remain under pressure, while the central bank lacks the firepower to adequately supply the market or clear a backlog of foreign exchange orders, which will keep foreign investors unnerved”, the Unit disclosed in a recent report.

”High inflation and a continued spread with the parallel market will leave the exchange rate regime unstable and result in periodic devaluation.”

A dead horse

Anambra State Governor, Prof. Chukwuma Soludo, recently claimed that the current administration led by President Bola Tinubu inherited a dead economy from its predecessor, calling on Nigerians to be patient with the government.

The former CBN governor, who spoke during an interview on Channels TV’s Politics Today, alleged that the CBN was illegally printing money, which, according to him, contributed to the fall of the country’s currency, a practice, he said, was a total violation of the 2007 Act governing the apex bank.

He said, “We sat here in this country and saw the monetary authorities literally printing money. And to prevent us from getting to where we are today, that was why we had an explicit clause that prevented the central bank from lending recklessly, granting Ways and Means to the Federal Government.

“This particular government inherited a dead economy from a micro economic point of view; this government inherited a dead horse that was seen standing but people didn’t know that it was dead. I think it’s important for Nigerians to understand this.”


Analysts say drawing so much from the CBN has opened the economy to severe risks. “Specifically the Debt to GDP now surpasses the 30 per cent benchmark the DMO and Minister of Finance always quoted,” Kalu Aja, a finance expert, said of the advances.

“For example, upwards of $1bn in the last few days came in to subscribe to the Nigeria Treasury Bill auction of N1trn, which saw an oversubscription earlier this week.”

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