As of December 2021, the amount borrowed by the FG from the CBN stood at N17.46 trillion and the amount has risen to N23.77tn in October 2022.
Whenever the FG has a shortfall in its budget, it uses Ways and Means advances, a loan facility it obtains from the CBN to offset the shortfall.
This is according to Section 38 of the CBN Act, 2007, which states that “the apex bank may grant temporary advances to the Federal Government with regard to temporary deficiency of budget revenue at such rate of interest as the bank may determine”.
This N23.77 which the FG owes the CBN is not captured in the country's total public debt stock which currently stands at N42.84 trillion as of June 2022. The N42.84 trillion public debt stock is a combination of the debts of the FG, 36 states and the FCT.
Speaking on the issue, the CBN opposed the move saying the continuous borrowing by the FG from the Ways and Means advances will have adverse effects on the policies that guide the country's finances.
The apex bank also added that the bank’s monetary policy would be affected too and that could also directly affect domestic prices and exchange rates.
“The direct consequence of central banks’ financing of deficits are distortions or surges in the monetary base leading to adverse effects on domestic prices and exchange rates i.e macroeconomic instability because of excess liquidity that has been injected into the economy,” it said.
There have been arguments over the FG’s browsing which analysts say has exceeded the allowed threshold as provisions in the act pegged monetary financing of fiscal deficits at five percent of the prior year’s revenues.
Global financial institutions like Fitch Global Rating and the World Bank have consistently warned the FG against following this process.
In January 2021, Fitch Global rating agency expressed concern over this development, warning the Federal Government against repeated recourse to this window. The World Bank had also admonished the FG financing deficits by borrowing through the Ways and Means Advances, saying this put fiscal pressure on the country’s expenditures.
The FG however, has kept borrowing from the CBN to fund budget deficits despite several warnings by these organizations and experts.
.