The Central Bank of Nigeria (CBN) has reaffirmed its commitment to adhere to the constitutional limit on Ways and Means Advances to the federal government, capping the advances at 5 percent of the previous year’s actual revenue collection.
This policy forms part of the CBN’s newly released monetary, credit, foreign trade, and exchange guidelines for the 2024-2025 fiscal years.
“Ways and Means Advances shall continue to be available to the federal government to finance deficits in its budgetary operations to a maximum of 5.0 per cent of the previous year’s actual collected revenue. Such advances shall be liquidated as soon as possible and shall, in any event, be repayable at the end of the year in which it was granted,” the guidelines state.
However, this commitment comes against the backdrop of the CBN’s controversial breach of the five per cent limit under the previous administration. The bank’s lending to the federal government surged to over N23 trillion through the Ways and Means facility, a significant departure from its statutory cap. The massive borrowing was one of the factors that raised concerns about fiscal discipline and monetary management in Nigeria.
The federal government had claimed that it was making efforts to address the ballooning debt. According to the Minister of Finance, Wale Edun, the government paid off N4.83 trillion of the accumulated Ways and Means advances within the past year. Additionally, Edun mentioned that the government was in the process of settling another N2.5 trillion by the second quarter of the year, although it remains unclear if that payment was completed.
The CBN, under its new guidelines, also emphasised that advances must be repaid within the fiscal year they are granted, a move aimed at reinforcing fiscal responsibility.
The new guideline by the apex bank further incorporated the Treasury Single Account (TSA) framework, stipulating that the calculation of these advances will consider the sub-accounts of Ministries, Departments, and Agencies (MDAs) linked to the Consolidated Revenue Fund (CRF). This approach is expected to provide a more accurate reflection of the federal government’s consolidated cash position and enhance transparency in public financial management.
The CBN Act mandates that temporary advances to the federal government for budgetary deficits must not exceed five per cent of the previous year’s revenue and must be repaid within the same fiscal year.
Should advances remain unpaid, the CBN’s power to grant further advances is suspended until the outstanding debt is cleared. This regulation, however, was largely disregarded in recent years, leading to the unprecedented accumulation of debt under the Ways and Means facility.