Experts raise concerns over FG’s borrowing limit from CBN
Experts have raised concerns about accountability and economic implications of the Nigerian Senate’s approval of an increase in the federal government’s borrowing limit from the Central Bank of Nigeria (CBN).
The Senate on 27 May made changes to a law, permitting the federal government to obtain additional funds from the Central Bank of Nigeria.
The legislature, in an emergency session, adopted changes that will permit an increase in its overdraft at the CBN.
Some economists argued that the increase in the limit is a necessary monetary intervention, adding that it is important to improve revenue generation.
Others, however, expressed doubts about the government’s ability to adhere to the limit and maintain fiscal discipline.
The Law
Under Section 38 of the CBN Act, the apex bank is granted the authority to borrow from.the apex bank but such overdraft should not surpass five percent of the government’s revenue from the previous year.
“(1) Notwithstanding the provisions of section 34 (d) of this Act, the Bank Advances may grant temporary advances to the Federal Government in respect of temporary deficiency of budget revenue at such rate of interest as the Bank may determine,” Section 38 of the CBN Act says.
“The total amount of such advances outstanding shall not at any time exceed five percent of the previous year’s actual revenue of the Federal Government.
“(2) All Advances made pursuant to this section shall be repaid… (a) 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.”
With the revised law, the overdraft limit will be raised from 5 percent to 15 percent of the previous year’s revenue.
Concerns
Many Nigerians have raised concerns about the decision, with many expressing fear that it may have significant implications for the country’s economy and debt profile.
Tope Fasua, an economist, argued that the increased borrowing capacity will not significantly affect monetary policy, noting that it as an additional monetary intervention by the central bank.
Mr Fasua noted that Nigeria has not borrowed beyond its threshold when compared to other nations, adding that there is urgent need to focus on revenue generation and leverage on the country’s balance sheet for development.
He said: “It will not have a lot of negative impact on monetary policy because the matter of ways and means is just a small subset of what the central bank does, which is different from monetary policy.
“The truth is that every country leans on its central bank, especially in times of global downturns. 5 percent seems small given our past experiences and the experiences of other countries. So I support the increase given that it is an extra monetary intervention of the central bank.”
“Also, it needs to be noted that indeed Nigeria is not overborrowing, contrary to all the current hoopla around borrowings. However, we should get very serious with driving revenues so that we get the right perspective of where our borrowings should be. 36 percent of debt to GDP is really low in the comity of nations and shows that we haven’t engaged our imagination on how to leverage our balance sheet for real development. We don’t have a revenue or debt or expenditure problem. We have a thinking problem,” he said.
Muda Yusuf, Director of the Centre for the Promotion of Private Enterprise, said the increased limit may not have a significant impact on the economy.
However, he raised concerns about the government’s ability to adhere to the set limit and maintain discipline.
“It (the new limit) is not going to have any significant impact because before now what is in practice is between 30 to 50 percent of actual revenue. There is already a very wide variance in terms of the violation of the Act so, if we are moving it from 5 percent to 15 percent, that is not anything that can cause any major macroeconomic problem,” he said.
“If the government can stick to that limit (and I am sure it is going to be very difficult) then it will be ok, that will be better than setting a limit that you don’t have the discipline to stay within the limit,” he said.
Mr. Yusuf warned against the practice of expending funds without proper appropriation and then seeking approval retroactively, describing it as a messy situation.
READ ALSO: Nigeria to reopen Enugu, Kano, Port Harcourt airports for international flights
But Kelvin Emmanuel, Chief Executive Officer of Dairy Hills, argued that the National Assembly’s decision to amend sections 38(2) without conducting proper oversight functions, including audits, hearings, and investigations, indicates a lack of understanding of their responsibilities.
He emphasised the importance of accountability and thorough examination of the impact on monetary policy.
“I will recommend that the new president declines assent to the amendment,” he said.
Way and Means
The Nigerian government has in recent years relied on advances from the CBN to shore up deficit amid dwindling revenue.
Before the expiration of his tenure, former president Muhammadu Buhari requested the Senate to approve the securitization of the CBN’s N22.7 trillion debt by converting it to a 40-year bond.
According to details from the Debt Management Office, the securitised loan will bring the country’s total debt stock to N77 trillion.
Mr. Emmanuel argued that the way the Nigerian Senate approved the securitization plan without an audit of the expenditure sets a negative precedent that could encourage future executive misconduct, disregarding the provisions of the CBN Act.
According to him, the loans had no impact on GDP growth, the unemployment rate is projected to rise to 40.6 percent in 2023, and per capita income has dropped nearly 50 percent in the past 8 years.
“The failure and refusal of the Senate to do its constitutional role of providing oversight on these issues is an opening for continual executive rascality that has seen debt servicing to budget ratio rise to 29 percent, and is directly responsible for the currency devaluation we have seen (because when you issue notes your foreign reserves cannot back, it causes depreciation, and corresponding devaluation to match),” he argued.
But in his reaction, Mr Fasua noted that the restructuring reclassified transactions on CBN’s balance sheet from being a mere overdraft to an asset, a category of bonds that the Central Bank is holding.
“That way the CBN balance sheet is looking better, meaning that Nigeria will be able to leverage that balance sheet more. In other words, (it can) borrow if it has to because now when lenders look at the balance sheet, it is looking dodgy – that N22.7 trillion hanging on the balance sheet,” he said.
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Experts have raised concerns about accountability and economic implications of the Nigerian Senate’s approval of an increase in the federal government’s borrowing limit from the Central Bank of Nigeria (CBN).
The Senate on 27 May made changes to a law, permitting the federal government to obtain additional funds from the Central Bank of Nigeria.
The legislature, in an emergency session, adopted changes that will permit an increase in its overdraft at the CBN.
Some economists argued that the increase in the limit is a necessary monetary intervention, adding that it is important to improve revenue generation.
Others, however, expressed doubts about the government’s ability to adhere to the limit and maintain fiscal discipline.
The Law
Under Section 38 of the CBN Act, the apex bank is granted the authority to borrow from.the apex bank but such overdraft should not surpass five percent of the government’s revenue from the previous year.
“(1) Notwithstanding the provisions of section 34 (d) of this Act, the Bank Advances may grant temporary advances to the Federal Government in respect of temporary deficiency of budget revenue at such rate of interest as the Bank may determine,” Section 38 of the CBN Act says.
“The total amount of such advances outstanding shall not at any time exceed five percent of the previous year’s actual revenue of the Federal Government.
“(2) All Advances made pursuant to this section shall be repaid… (a) 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.”
With the revised law, the overdraft limit will be raised from 5 percent to 15 percent of the previous year’s revenue.
Concerns
Many Nigerians have raised concerns about the decision, with many expressing fear that it may have significant implications for the country’s economy and debt profile.
Tope Fasua, an economist, argued that the increased borrowing capacity will not significantly affect monetary policy, noting that it as an additional monetary intervention by the central bank.
Mr Fasua noted that Nigeria has not borrowed beyond its threshold when compared to other nations, adding that there is urgent need to focus on revenue generation and leverage on the country’s balance sheet for development.
He said: “It will not have a lot of negative impact on monetary policy because the matter of ways and means is just a small subset of what the central bank does, which is different from monetary policy.
“The truth is that every country leans on its central bank, especially in times of global downturns. 5 percent seems small given our past experiences and the experiences of other countries. So I support the increase given that it is an extra monetary intervention of the central bank.”
“Also, it needs to be noted that indeed Nigeria is not overborrowing, contrary to all the current hoopla around borrowings. However, we should get very serious with driving revenues so that we get the right perspective of where our borrowings should be. 36 percent of debt to GDP is really low in the comity of nations and shows that we haven’t engaged our imagination on how to leverage our balance sheet for real development. We don’t have a revenue or debt or expenditure problem. We have a thinking problem,” he said.
Muda Yusuf, Director of the Centre for the Promotion of Private Enterprise, said the increased limit may not have a significant impact on the economy.
However, he raised concerns about the government’s ability to adhere to the set limit and maintain discipline.
“It (the new limit) is not going to have any significant impact because before now what is in practice is between 30 to 50 percent of actual revenue. There is already a very wide variance in terms of the violation of the Act so, if we are moving it from 5 percent to 15 percent, that is not anything that can cause any major macroeconomic problem,” he said.
“If the government can stick to that limit (and I am sure it is going to be very difficult) then it will be ok, that will be better than setting a limit that you don’t have the discipline to stay within the limit,” he said.
Mr. Yusuf warned against the practice of expending funds without proper appropriation and then seeking approval retroactively, describing it as a messy situation.
READ ALSO: Nigeria to reopen Enugu, Kano, Port Harcourt airports for international flights
But Kelvin Emmanuel, Chief Executive Officer of Dairy Hills, argued that the National Assembly’s decision to amend sections 38(2) without conducting proper oversight functions, including audits, hearings, and investigations, indicates a lack of understanding of their responsibilities.
He emphasised the importance of accountability and thorough examination of the impact on monetary policy.
“I will recommend that the new president declines assent to the amendment,” he said.
Way and Means
The Nigerian government has in recent years relied on advances from the CBN to shore up deficit amid dwindling revenue.
Before the expiration of his tenure, former president Muhammadu Buhari requested the Senate to approve the securitization of the CBN’s N22.7 trillion debt by converting it to a 40-year bond.
According to details from the Debt Management Office, the securitised loan will bring the country’s total debt stock to N77 trillion.
Mr. Emmanuel argued that the way the Nigerian Senate approved the securitization plan without an audit of the expenditure sets a negative precedent that could encourage future executive misconduct, disregarding the provisions of the CBN Act.
According to him, the loans had no impact on GDP growth, the unemployment rate is projected to rise to 40.6 percent in 2023, and per capita income has dropped nearly 50 percent in the past 8 years.
“The failure and refusal of the Senate to do its constitutional role of providing oversight on these issues is an opening for continual executive rascality that has seen debt servicing to budget ratio rise to 29 percent, and is directly responsible for the currency devaluation we have seen (because when you issue notes your foreign reserves cannot back, it causes depreciation, and corresponding devaluation to match),” he argued.
But in his reaction, Mr Fasua noted that the restructuring reclassified transactions on CBN’s balance sheet from being a mere overdraft to an asset, a category of bonds that the Central Bank is holding.
“That way the CBN balance sheet is looking better, meaning that Nigeria will be able to leverage that balance sheet more. In other words, (it can) borrow if it has to because now when lenders look at the balance sheet, it is looking dodgy – that N22.7 trillion hanging on the balance sheet,” he said.
Support PREMIUM TIMES’ journalism of integrity and credibility
Good journalism costs a lot of money. Yet only good journalism can ensure the possibility of a good society, an accountable democracy, and a transparent government.
For continued free access to the best investigative journalism in the country we ask you to consider making a modest support to this noble endeavour.
By contributing to PREMIUM TIMES, you are helping to sustain a journalism of relevance and ensuring it remains free and available to all.
Donate
TEXT AD: Call Willie – +2348098788999
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