A member of the Central Bank of Nigeria Monetary Policy Committee, Murtala Sabo Sagagi has advised the Federal Government to reconsider the increase of the ‘Ways and Means’ limit to 10 per cent.
The recommendation on the Ways and Means to 10 per cent limit has aroused debate among reknowned Nigerian economists.
NewsNGR repots that Sagagi made the recommendation in a personal statement at the 296th Monetary Policy Committee meeting of the CBN.
Ways and Means is a temporary loan advance given to the government by the CBN to finance urgent needs.
CBN’s funding of the government through ‘Ways and Means’ plunged Nigeria into debt of N30tn owed the CBN, a factor that has fueled inflation.
Ways and Means as of December 2015 stood at N856bn; it rose to N2.2tn in December 2016 implying an extra N1.34tn borrowing in that year. By December 2017 the government added another N1.1tn to reach N3.3tn.
The amount rose to N5.4tn by December 2018 after the government took N2.1tn. By December 2019 the advance rose by N3.3tn to N8.7tn in December 2019.
The advance reached N13.1tn by December 2020 which implies N4.4tn. It rose further by N4.3tn to N17.4tn by December 2021.
It rose to N23.8tn by December 2022, showing N6.4tn addition. From 2023 to May 2024, the amount rose to N26.95tn which is an additional N3.15tn advance.
Under Tinubu, the government borrowed an additional N3.8tn Ways and Means loan.
Although President Bola Ahmed Tinubu’s government said it would take a different approach, data showed that the government has taken an additional N3.8tn Ways and Means loan as of April 2024.
Section 38 of the CBN Act 2007 deals with Ways and Means Advances to the FG. According to section 38(1), “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.”
Section 38(2) of the CBN Act states, “The total amount of such advances outstanding shall not at any time exceed five (5) percent of the previous year’s actual revenue of the Federal Government.”
Section 38 (3) provides, “All Advances made pursuant to this section shall be repaid, (a) as soon as possible and shall, in any event, be repayable by the end of the Federal Government financial year in which they are granted and if such advances remain unpaid at the end of the year, the power of the Bank to grant such further advances in any subsequent year shall not be exercisable, unless the outstanding advances have been repaid: and (b) in such form as the Bank may determine provided that no repayment shall take the form of a promissory note or such other promise to pay at a future date or securitization by way of issuance of treasury bills, bonds, certificates, or other forms of security which is required to be underwritten by the Bank.”
However, the administration of former president Muhammadu Buhari exceeded the allowable limit.
Meanwhile, out the N30tn owed the CBN by FG, N7tn was approved for securitization while N4.905tn has been raised, the Debt Management Office (DMO)’s Director-General, Patience Oniha, said.
Tinubu government also went further to obtain Senate approval to increase the allowable limit for the loan advances from 5- 10 per cent.
In response, the MPC member said the increase was unhealthy considering Nigeria’s debt situation.
The management economist said to increase the effectiveness of monetary policy in taming inflation, stabilizing exchange rates and enhancing the productiveness of the economy, the federal government should consider “reversing its decision to increase ways and means to promote fiscal discipline and improve investor confidence.”
The Senior Partner and Economist at SPM Professionals, Dr. Paul Alaje reacting to the comment told NewsNGR that increasing the allowable limit to 10 per cent does not reflect fiscal discipline.
Alaje said, “I agree with him (Murtala Sabo Sagagi) 100 per cent. If that movement is done, it will connote that some of the gains that the monetary policy committee hopes to achieve by raising interest rates will be eroded. Where are they getting money for the ways and means. It is either they are printing money or they are using money that is meant to be kept.
“When you raise interest rate or use naira to buy US dollars, the money is supposed to be kept because you are trying to reduce money supply. When you now give the money back in the system through ways and means be it 5 per cent or 10 per cent, you are actually building inflation. And when this is done, you are going to see inflation skyrocket. This is policy somersaults or non-alignment of policy between the fiscal and monetary policy.
The expert said monetary authorities do not align with increasing ways and means limit because they are targeting inflation adding “If the presidency says it wants Ways and Means that is more money, then there is no point raising interest rate because it will frustrate the entire system.”
“It is wrong to even increase Ways and Means by 0.5 per cent not alone 100 per cent of what is currently allowable. In monetary economics, inflation will not go back to a manageable corridor of 9 per cent with ways and means- printing of naira.”
He said what constitutes Nigeria’s monetary inflation is the printing of money for Ways and Means and the devaluation of the currency.
Sharing a divergent view, the Director of the African Centre for Share Development, Prof. Olu Ajakaiye, said that the concern should be about fiscal responsibility, not the allowable limit.
Ajakaiye admitted raising the allowable limit to 10 per cent gives room for possible abuse and in the context of managing inflation, sabotage of monetary policy targets.
But he argued that if there is fiscal responsibility on the part of the executives, the new limit may have no effect on the economy.
“The important thing is for fiscal authority is to be very prudent. If they don’t exploit the 10 per cent ceiling, then it will not have any effect on the inflationary pressure. Even if it is 5 per cent, if you have a fiscally irresponsible executive, we will face the same challenge,” he said.
The professor said if the government must use the 10 per cent window, it has to comply with the provisions of the Act which requires the advances to be paid by the end of the year.
Prof. Akajaiye said, “The problem we had in the last eight years is that the fiscal authorities will borrow and will not comply with the regulation while the monetary authorities kept on accommodating it in a very irresponsible way.
“If we have a strong monetary authority that can say no to the executives and you have a president that will not put pressure on the CBN to flout regulations, then there will be no problem.”
He admitted that his worry is the ability of the fiscal authorities to comply with the regulation, whether 10 per cent or less.
The expert added, “If the fiscal authorities fail, we will run into the same problem that we ran into in the last eight years. The issue is that so long as there is noncompliance, whether 2 per cent or 10 per cent, the country will be doomed.
“But if they can clear their books and not exceed allowable limits, there will be no issues.”