Nigeria’s upper legislature recently approved N23.7 trillion to be securitised, a move that raises Nigeria’s aggregate debt from N46 trillion to N70 trillion. The lawmakers later amended the CBN Act to accommodate more loans via ways and means and to avoid government running afoul of the process.
Nigeria’s debt-to-GDP has now risen from 23.2 per cent to 35.1 per cent, meaning it might need to raise its 40 per cent debt limit in the nearest future. Nigeria’s ‘ways and means’ advances (pejoratively known as ‘money printing’) grew from N790 billion in May 2015 to N23.7 trillion in 2022.
This means the Central Bank of Nigeria (CBN) has been lending to the Federal Government against its laws, which stipulate that the government is not supposed to borrow more than five per cent of its previous year’s revenues from the CBN.
In fact, the CBN breached this rule by lending the Federal Government up to 91.27 per cent of its 2021 revenues in 2022, throwing fiscal guardrails to the dust. This process was breached serially, and the current securitisation is the validation of the illegality.
Several governance issues have now been brought to the fore, highlighting perennial issues relating to the erosion of public sector accountability, improper fiscal management, and a continued misunderstanding of the role of separation of powers. Hence, there are a few things to consider due to this approach.
While the Federal Government continued to expand its budget expenditure and revenues were not anchored on realistic projections, it used the ‘ways and means’ copiously to shore up expenditure, denying the opportunity to rationalise expenditure and set priorities in line with revenues.
It is a well-known approach as extra-budgetary support from monetary authorities is usually laid with conditions for fiscal consolidation or operational efficiency.
Apart from raising the domestic debt from N8.8 trillion in December 2015 to N27.6 trillion in December 2022 and foreign debt from $10.7 billion in June 2015 to $37.23 billion by December 2022, the Federal Government continued on a borrowing spree, without considering that it was an optimising expenditure.
If the Federal Government has the leeway to borrow money indiscriminately from the CBN, what then is its incentive to grow revenues? Will taxes remain the fiscal option to provide equilibrium in society if the CBN continues to inject funds into the system in a haphazard manner?
For instance, during high oil prices, the Federal Government showed no urgency to grow production to benefit from the windfall, as oil production collapsed to a nearly 20-year low of 900,000 barrels per day.
At the initial review, the National Assembly requested details of the Federal Government’s funds use that justified the securitisation. No response was given to this demand, and it is puzzling that the Senate still approved it nonetheless. It went further to amend the CBN Act to accommodate more ways and means from the federal government.
Accumulating debt for sustainability purposes should come with the clarity of funds allocation and use to help assess if they are applied to self-liquidating projects or have the capabilities to further generate revenues in the near or long term. The absurd part of the ‘ways and means’ situation is that Nigeria largely borrowed these funds to finance consumption, as shown in the recurrent funding gap.
This reinforces the notion that the ‘ways and means’ financing has been converted to a budget funding instrument, as opposed to the liquidity support it was intended to be. While the Federal Government has secured a moratorium of three years before the interest (at nine per cent) would start to be paid, what says that the Federal Government’s “grace” period would not be extended?
Is it not possible that the debt service costs can be paid to CBN, only to be borrowed again? In every element of social justice and in line with the Fiscal Responsibility Act, debt should be used for capital projects and human capital development. Still, the Federal Government used the ‘ways and means’ to cover its recurrent shortfalls. Nigeria might have distorted its fiscal structure.
The inability of the Federal Government to control itself with regard to the continuous exploitation of the ‘ways and means’ facility may show a deeper problem of an executive arm of government that cannot abide by its own rules. Such a scenario smacks of ‘Rule by Law’ (as opposed to ‘Rule of Law’), where laws and rules exist for everyone, except those in government or those powerful enough to change the laws.
Over the years, different organisations have reiterated that the ‘ways and means’ advances significantly impact devaluation and inflation, as they continue to increase the money supply without commensurate asset backing. However, the Ninth National Assembly, through its Appropriation and Public Accounts Committees, did not apply the necessary oversight to ensure that the law was kept. It also means that the executive can continue to break the rules and use the National Assembly to validate such abuse at the end of the period.
Between 2019 and 2022 (which mainly captured the Ninth National Assembly), the ‘ways and means’ advanced to the Federal Government reached N18.3 trillion. This was 77 per cent of the total amount securitised, which explains that every level of scrutiny was clearly suspended.
Even if the executive intended to approach the National Assembly, the former should have asked for an amendment of the relevant section of the CBN Act to allow for a larger threshold for the size of advances it aims for.
Another critical point to note is that the volume of debt securitised was a stock and not a flow.
What will happen to the ‘ways and means’ that was obtained after the request to securitise the N23.7 trillion was made? What deterrence is in place to prevent future debt accumulation through ‘ways and means’ even though the CBN Act has been expanded to accommodate more loans?
Previous administrations have tried to limit the national debt due to its potentially corrosive effect on public revenues (famous efforts such as the Paris Club exit in 2005 and its impact on sovereign risk ratings cum cost of borrowing). Previous administrations also expanded ‘buffer funds’, such as the Excess Crude Accounts and Sovereign Wealth Fund, which helped the country weather the global recession crisis.
The Buhari-led government suspended the rules of fiscal prudence and leaned on the CBN beyond acceptable limits. This broke the independence of the Central Bank and made price stability its undesired target, as inflation galloped to 22 per cent and gradually eased the national currency from being an assured store of value.
It behoves the new administration to check the overwhelming presence of the monetary institution; else, we might continue on this irrecoverable slope in which the apex bank is fully degraded to a mere Federal Government parastatal.
***Oluseun Onigbinde is co-founder of BudgIT, a civic organisation focused on strengthening civic engagement and institutional accountability.*
