Overview

In a pivotal move, the Nigerian Senate has recently amended section 38 of the Central Bank of Nigeria (CBN) Act, ushering in a substantial raise in the apex bank’s Ways and Means Advances. The amendment passed during an emergency session held on May 27th, 2023, grants the CBN the authority to extend its short-term loans to the Federal Government, increasing the limit from the current 5 per cent to an imposing 15 per cent of the previous year’s actual revenue.

The Ways and Means provision serves as a crucial lifeline for the government, enabling it to secure short-term or emergency financing when faced with delayed cash receipts and fiscal deficits. This significant policy shift arrives just days before the inauguration of the Bola Tinubu administration, which will confront a myriad of formidable challenges, including mounting debt, dwindling revenues, and a surging unemployment rate.

Senator Gobir Abdullahi, the esteemed sponsor of the bill, elucidated the necessity of raising the Ways and Means request from its current 5 per cent threshold to 15 per cent. This adjustment aims to empower the Federal Government to meet its financial obligations more effectively, albeit with potential ramifications.

Section 38 of the CBN Act, which has been subject to modification, previously stipulated, “Notwithstanding the provisions of section 34(d) of this Act, the Bank (CBN) may grant temporary advances to the Federal Government in respect of temporary deficiency of budget revenue at such rate as the Bank may determine. The total amount of such advances outstanding shall not at any time exceed five (5) per cent of the previous year’s actual revenue of the Federal Government.”

Over the years, the Ways and Means Advance extended to the government has experienced a staggering surge since President Buhari’s assumption of office in 2015. Starting from a modest sum of approximately N789.6 billion in May 2015, the advances have skyrocketed to an alarming and illicit level of N22.7 trillion. Even more concerning is the fact that these advances have grown parallel to the decline in the government’s revenue streams. Consequently, what was intended as short-term financial support has transformed into the primary method of funding the government’s deficits, effectively becoming a blank cheque despite explicit warnings from global financial institutions such as the World Bank and the International Monetary Fund (IMF).

Regrettably, the CBN has acquiesced to the government’s demands without demonstrating the courage to uphold its independence by invoking the provisions of the law. This surrender has engendered a gross disregard for existing legislation, as the executive branch flagrantly abuses its power, contravening established laws of the land. The government’s insatiable appetite for “free” funds from the central bank has evidently blinded its ability to comprehend the detrimental consequences of its actions. Moreover, the National Assembly, responsible for exercising oversight over the CBN, has regrettably neglected its crucial role in this regard.

As we keep a close watch on the developments in the Ways and Means advance to the incoming administration, we are eager to hear your thoughts on its impact and implications for the Nigerian financial landscape. Do you believe the increase in government borrowing from the central bank is worrisome or indicative of a steadfast commitment to economic expansion? Share your thoughts in the comments section.

 

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