CBN Slashes Emergency Loans to FG Amid Increasing Debt Concerns
- The Central Bank of Nigeria has cut its Ways and Means advances to the federal government by nearly 59%, signalling a shift toward stricter fiscal and monetary discipline.
- This move aims to curb inflation and reduce the country’s dependence on central bank borrowing, which had reached N22.7 trillion before being converted into long-term debt.
- Analysts warn that while this eases short-term pressure, it increases long-term debt servicing costs and poses reputational risks for Nigeria’s credit standing.
Legit.ng journalist Zainab Iwayemi has 5-year-experience covering the Economy, Technology, and Capital Market.
In a sign of tightening monetary and fiscal policy, the Central Bank of Nigeria (CBN) reduced its Ways and Means advances to the federal government by 59%.
Source: Getty Images
The central bank provides the federal government with Ways and Means Advances—a form of emergency loan—when revenues fall short. According to the CBN’s 2024 financial statement, released over the weekend, these short-term loans totalled N7.94 trillion by the end of 2023. However, that amount fell to N3.27 trillion in 2024, marking a decline of N4.68 trillion or 58.9%.
BusinessDay reported that the reduction underscores the CBN’s significant efforts to clean up its balance sheet and pivot towards more responsible fiscal behaviour.
What this means
For years, the federal government has relied heavily on borrowing from the CBN to fund capital projects and urgent obligations such as salaries. Between July and December 2023 alone, the government secured an additional N3.8 trillion through this channel.
By the end of 2022, total borrowing via Ways and Means had ballooned to N22.7 trillion—far above the frequently cited N7.5 trillion figure.
In 2023, the National Assembly approved the securitisation of the N22.7 trillion, effectively converting the CBN’s short-term overdrafts into long-term bonds with staggered repayment. While this eased immediate fiscal pressure, it added to Nigeria’s total public debt.
Under the CBN Act of 2007, the central bank is only allowed to lend up to 5% of the government’s revenue from the previous year. This rule was routinely violated under the previous administration. However, in January 2024, CBN Governor Olayemi Cardoso announced that no further Ways and Means advances would be issued until the outstanding amounts were fully repaid.
This newly enforced fiscal discipline comes at a time of heightened inflation. Economists have long warned that excessive money printing to cover government expenditure introduces too much currency into the economy.
Nigeria’s broad money supply (M3) rose by more than 51% in the early months of 2024, and the CBN admitted in a March 2024 report that excessive borrowing was fuelling inflationary pressure.
Source: UGC
Though securitising the overdrafts provides short-term relief, the cost is merely deferred. Servicing Nigeria’s debt will become more expensive, leading to higher interest rates and reducing funds available for other developmental purposes.
There is also a reputational risk: international investors could begin to question Nigeria’s creditworthiness if fiscal management remains weak. Experts warn that losing investor confidence could be damaging, especially as Fitch Ratings currently maintains a stable outlook on Nigeria’s economy.
Nigeria owes $43 billion to foreign creditors
Legit.ng earlier reported that, as of 30 September 2024, Nigeria owes over $42 billion to foreign countries and institutions.
Data from the Debt Management Office (DMO) indicates that this figure represents accumulated debt from both past and present administrations.
It’s also worth noting that the DMO clarified President Bola Tinubu’s inherited debt was N87 trillion—not N21 trillion, as previously reported in some media outlets.
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Source: Legit.ng
