ECONOMIC analysts have expressed worry that the amendment to the Central Bank of Nigeria (CBN) Act, which increases the apex bank’s advances to the Federal government from five per cent to 15 per cent, will create monumental macroeconomic challenges now and in the future.
The analysts said the amendment contradicted best practices in fiscal responsibility and would authorise the Executive to create macroeconomic distortions through arbitrary and increased ways and means borrowings.
In a statement jointly signed by financial advocacy groups, Centre for Social Justice (CSJ) and Public Finance Management (PFM), and obtained by The ICIR on June 20, the two bodies recalled that the extant section 38 of the CBN Act grants the Federal government access to ways and means financing in respect of temporary deficiency of budget revenue at such rate of interest as may be determined by the CBN.
The Lead Director of the CSJ, Eze Onyekpere, signed on behalf of that organisation, while Chidi Sundayson, the Programme Manager for the PFM, Chidi Sundayson, signed for it.
They noted that as per the extant Act, the total amount of such advances outstanding shall not at any time exceed five per cent of the previous year’s actual revenue of the Federal government.
“All Advances made pursuant to this authority shall be repaid – (a) as soon as possible and shall in any event be repayable by the end of the Federal Government in the financial year in which they are granted, and if such advances remain unpaid at the end of the year, the power of the CBN to grant such further advances in any subsequent years shall not be exercisable unless the outstanding advances have been repaid,” the statement read.
The document, quoting Abdullahi Ibrahim Gobir, a senator in the 9th Assembly and a key proponent of the bill, stated, “The very essence of this bill is to enable the Federal government meet its immediate and future obligations in the approval of the ways and means by the National Assembly, and advances to the Federal government by the Central Bank of Nigeria.
“The amendment is very consequential, and it needs the support of us all. This is to enable the Federal government to embark on very important projects that will inflate and rejig the economy.”
But the two opposing bodies pooh-poohed Gobir’s arguments. They maintained that the amendment was a misconceived route to merely meeting the needs and obligations of the Federal government and can definitely not be the road to rejigging the economy.
“It will rather create new macroeconomic challenges,” they said.
Citing specific concerns on the amendment, the bodies said the Federal government had been unable to refund previous advances from the CBN at five per cent of the previous year’s revenue and queried what machinery the amendment was putting in place to ensure that the government would be in a position to repay 15 per cent by the end of its financial year.
Previous high levels of advances had led the Executive to incur over N23 trillion in debt in ways and means, which could not be repaid and had to be converted by the National Assembly to long-term indebtedness, contrary to the provisions of the CBN Act.
Section 38 (1) of the CBN Act states that such advances should be in respect of temporary deficiency of budget revenue and not as a means of funding the deficit budget, as the Federal government had resorted to in recent years. Analysts pointed out that in accordance with fit and good practices, the ways and means option has never been listed in the Appropriation Act as a source of funding the deficit.
The ICIR had reported that the CBN’s crossing of the threshold of lending to the Federal government was violating the Fiscal Responsibility Act and creating high inflationary pressure on the economy.
The analysts also said the ways and means option to fund budgetary deficits further increases the already high inflation rate, especially when done by printing money not backed by value. They explained that this erodes the value of the naira and real income, and reduces the purchasing power of citizens.
The joint statement condemned the amendment to the CBN Act as not following due process, and was arbitrary and lacking in popular participation.
“There was no opportunity of a public hearing and publicity to give room for Nigerians to make inputs on this very crucial matter that could negatively affect overall economic growth and the general welfare of the people,” the group said.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.