The N30 trillion ways and means advances by the Central Bank of Nigeria (CBN) to the federal government have hung in a regulatory trap that no one wants to be cut. Even the lawmakers, who approved that the bank lend more money to the government than its law permits, are frantically seeking to escape being counted as lawbreakers.
But why is getting the CBN to lend even more money to the government considered more important than tackling the issue of regulatory rule-breaking?
A bill hastily passed by the National Assembly amending the CBN Act to raise the percentage of ways and means lending to the government from five per cent of actual revenue to 10 per cent is presently waiting to be signed into law by the President. The handwriting on the wall spells fiscal crisis, desperation expediency and further going down the road to excessive borrowing from the Central Bank.
CBN Act 2007 section 38 specifies that the bank may grant temporary advances to the federal government to cover the budget revenue gap but such loans shall not at any time exceed five per cent of the government’s actual revenue in the preceding fiscal year.
CBN’s 2022 annual economic report shows that the federal government’s actual revenue for the year is N3.4 trillion against budgeted revenue of N6.1 trillion. The bank is not permitted to lend more than 5 per cent of the actual revenue for the year, which amounts to N170 billion to the federal government. The N30 trillion ways and means advance is as much as 176.5 times that regulatory limit.
The Act imposes a loan repayment stringency – that all such loans shall be repayable not later than the same government’s financial year in which they are granted. This means the federal government has broken this regulatory provision by failing to repay the ways and means of advances of the CBN by the end of 2023.
The Act also specifies expressly that where such advances are not repaid as provided, the bank is not empowered to grant further advances to the government until the outstanding advances are fully paid. The extent to which this provision has been breached shall be determined by the details of the loan disbursements.
How much the federal government is indebted to the CBN is wrapped in secrecy with no accounts issued by the bank for three years. It is believed however that the ways and means advances have piled up over the years with new borrowings and no repayments.
The Act also spells out terms of repayment of the loan, disallowing any repayment in the form of a promissory note or securitisation through the issuance of treasury bills, bonds, certificates or other forms of security, which is to be underwritten by the bank. This provision nullifies the idea of turning the loan into a 40-year bond with a 9 per cent interest rate floated by former President Muhammadu Buhari before leaving office.
The stringency of the Act was crafted to prevent the politicians from possible credit abuse, yet, it appears the CBN failed to invoke the defensive mechanisms to keep a spendthrift government at bay.
Lawmakers are pleading ignorance of the law they make in being led to approve the huge ways and means advances for the government, which offers them no excuse. That legislators approved the borrowing for the former President based on a promise to provide details later is seen as speaking loudly of gross fiscal misconduct and how far they are in the house for the people.
That the executive can get the CBN to break its law to give it as much money as it wants and get the two chambers of the National Assembly to approve it without asking questions is a remote possibility even in systems ruled by monarchs.
What to do with the CBN’s N30 trillion ways and means advances to the federal government remains a puzzle with a regulatory snare around it. Securitising the debt is ruled out under the CBN Act and proceeding without amending the Act is a nullity.
Amending the Act to accommodate the breaking of the rule speaks of fiscal lawlessness of a magnitude never seen in fiscal governance. It is a clear signal to the global financial community that an uncultured borrower should be isolated from the credit market.
There is yet, no headway, in seeking and finding a way to prevent the recurrence of such a level of bad lending in the future. The question mark on the N30-trillion loan by the Ninth Assembly as against the N23 trillion it claimed to have approved seems to suggest that new lending and borrowing may still be happening with no lessons learnt.
The 10th Assembly has blamed the Ahmad Lawan administration at the National Assembly for approving the ways and means of advances without the details from the government. Yet, it appears to be making the same mistake, by hurriedly increasing the government’s dependence on the CBN advances without the details of the government’s indebtedness to the bank. Rules of credit often get discarded in the exigencies of a fiscal crisis.
It can be expected that the CBN Act will be called up for more surgery to accommodate past and present fiscal misconducts, but that could produce one of the worst balance sheets in central banking
