Fed government pays N405 billion in interest on CBN loans

Zainab Shamsuna Ahmed, Minister of Finance

FIRS

The Federal Government paid interest of N405.93 billion from January 2022 to April 2022 on loans it obtained from the Central Bank of Nigeria through the Ways and Means Advances.

This is according to data obtained from the medium-term expenditure framework and the government’s fiscal strategy paper 2023-2025.

Ways and Means Advances are a loan facility used by the central bank to finance the government in times of temporary budget deficits subject to limits imposed by law.

However, there was no budgetary allocation for this in the 2022 budget.

Previously, the Federal Government spent N912.57 billion in 2020 and N1.12 billion from January to November last year on interest on Ways and Means Advances, despite no budget allocation for this purpose in the budgets.

The CBN said on its website that federal government borrowing through the Ways and Means advances could have negative effects on the bank’s monetary policy – ​​to the detriment of domestic prices and exchange rates.

“The direct consequence of central bank financing of deficits are distortions or increases in the monetary base leading to negative effects on domestic prices and exchange rates, i.e. macroeconomic instability due to the excess cash that was pumped into the economy,” he said.

The World Bank in November last year warned the Nigerian government against financing deficits by borrowing from the CBN through the Ways and Means Advances, saying this often put budgetary pressures on country spending.

Also Read: CBN lends banks N595.34 billion in two months

According to the bank, CBN financing and the fuel subsidy have tended to undermine investment in human and physical capital.

He said the government had always under-budgeted debt service because the government had not included the cost of ways and means financing in its debt service allocation.

A global credit rating agency, Fitch Ratings, had in January 2021 raised concerns about the federal government’s repeated use of its ways and means facility with the central bank.

The agency said the use of central bank financing in Nigeria could increase risks to macroeconomic stability in the context of weak institutional safeguards that preserved policy-making credibility and the central bank’s ability to deliver. control inflation.

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