FG Borrows N22trn From CBN In Two Months
Through Ways and Means Advances, the Federal Government of Nigeria has borrowed total sum of N22 trillion from the Central Bank as at August 2022, up from about N20.6 trillion in July.
In August alone, FG’s borrowing from the apex bank was N1.46 trillion, increasing to a total of N4.61 trillion loans from January to August according to data from CBN.
As of June 30, 2022 the Nigeria’s public debt stock stood at N42.8 trillion consisting of loans obtained by both the Federal Government and the 36 states of the federation and Abuja.
However, Nigeria’s Debt Management Office (DMO) said that the N22.07 trillion owed the apex bank by the Federal Government is not part of the country’s total public debt.
Section 38 of the CBN Act, 2007 provides for Ways and Means Advances as loan facility through which the apex bank finances government’s budgetary shortfalls or grant other temporary advances to the Federal Government at interest rate the bank may determine.
But this provision puts a cap to the amount of loan the CBN is allowed to extend to government.
“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,” the law stipulates.
It further stipulates thus: “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.”
Commenting on profligacy towards constantly borrowing the CBN and its impact on the economy, the Managing Director and Chief Executive Officer, Highcap Securities Limited, David Adonri, said that there was nothing wrong if the transactions follow due process.
He however expressed concern over the ability of Federal Government to honour the terms and conditions for accessing such credit credit window considering revenue shortfalls.
“My Idea is that government may be constrained to repay the loans considering its shortfalls in revenue accretion.
“Again, the risk of piling pressure on excess liquidity capable of distorting the macro economic equilibrium is high. It could stoke inflation, and further weakening of naira valuation,” said that financial expert.
He warned Government against further borrowings from the CBN, urging the government to explore the debt market.
The Chief Economist, Economic Associates Limited, Biodun Adedipe, urged government to raise equity to finance its shortfalls and at the same time boost foreign exchange inflows rather than fiddle around with domestics debt market that comes with higher cost to credit.
Adedipe noted that government has enough assets by which it can raise funds through equity, stressing that the good thing about it is that equity investors have long term view and the issuer determines pricing.
However, Adonri cautioned that the current situation of global markets does not favour raising funds through equity especially for a country like Nigeria with lots of issues.
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