March 15, 2024/CSL Research
On March 11, 2024, the Senate inaugurated a committee tasked with investigating the procurement and utilization of the N30trn ways and means loan acquired from the Central Bank of Nigeria (CBN). According to a report published by the Debt Management Office (DMO) as of 5 May 2023, the total ways and means advances to be securitised amounted to N22.7 trillion.
On 30 December 2023, the national assembly approved President Bola Tinubu’s request for the securitisation of another outstanding N7.3 trillion Ways and Means debt balance. Ways and means advances serve as a short-term financing mechanism for the Federal Government (FG), primarily utilized to address budget revenue shortfalls.
Section 38 of the Central Bank of Nigeria (CBN) Act 2007 specifies that the CBN may in respect of temporary deficiency of the budget revenue grant temporary advances to the FG at an interest rate that the Bank may determine.
The Act states that the total amount of such advances outstanding shall not at any time exceed 5% of the previous year’s actual revenue of the FG. Last year, the House of Representatives and the Senate approved an amendment to the Central Bank of Nigeria’s (CBN) Act, raising the ceiling of Ways and Means Advances from the apex bank to 15% of Federal Government Revenue from 5% previously. The CBN Act also emphasises that all advances should be repaid by the end of the FG financial year in which they were granted and restricts the CBN from granting any further advances where such advances remain unpaid at the end of the year.
The Debt Management Office (DMO) of Nigeria disclosed that the N22.7 trillion ways and means advances were converted into a long-term debt instrument with a maturity period of 40 years, carrying an interest rate of 9%, and a moratorium period of 3 years. This conversion to debt carries several implications, notably enhancing debt transparency by incorporating the ways and means loan into public debt statistics. Additionally, there are expected savings in interest costs since the Central Bank of Nigeria (CBN) previously set the short-term loan interest rate at the Monetary Policy Rate (MPR) plus 300 basis points.
The current CBN Governor, Olayemi Cardoso has expressed concerns that the ways and means advances have contributed to the current high inflationary environment by increasing money supply and has on the back of this, reiterated that the CBN will no longer grant such interventions to the FG until the outstanding balance is settled.
The nation’s total public debt grew to N87.91tn (US$114.35bn) as of September 2023 compared with N44.06tn recorded in the same period of the prior year. The y/y growth was mainly due to the devaluation of the Naira and the inclusion of the securitized ways and means loans into the debt stock. It is imperative that the new administration seeks efficient ways to generate revenue to meet both short and medium-term government expenditure. Increased revenue alongside efficient policies that would lead to a gradual reduction of the public debt is one step to set the nation back on the track of recovery.
