Lawyers have analyzed the legal implications and consequences associated with the Central Bank of Nigeria’s (CBN) reaffirmation that its Ways and Means Advances to the federal government will continue to be maintained at the 5% threshold for the fiscal years 2024-2025.
Last Tuesday, the CBN revealed it can advance up to 5% of the previous year’s actual collected revenue to the federal government, which must be repaid within the year to prevent a long-term fiscal burden.
The Ways and Means facility allows the apex bank to provide short-term financing to the federal government to address budget shortfalls.
This aligns with its Monetary, Credit, Foreign Trade, and Exchange Policy Guidelines for Fiscal Years 2024-2025, released by the CBN on Tuesday.
In an exclusive interview with Nairametrics, prominent legal practitioners shared their thoughts on the development in relation to relevant financial laws in Nigeria.
CBN to Consider Sub-Accounts of MDAs in Calculating Threshold
The Ways and Means advances from the CBN have been associated with various forms of misappropriation in the past.
In guidelines previously reported by Nairametrics, the CBN clarified that the advances would now be determined by recognizing the sub-accounts of various Ministries, Departments, and Agencies (MDAs) linked to the Consolidated Revenue Fund (CRF), ensuring a consolidated cash position for the federal government in line with Treasury Single Account (TSA) arrangements.
The apex bank noted: “Consistent with the banking arrangement of the Treasury Single Account (TSA), Ways and Means Advances would now be determined after recognizing the sub-accounts of the various MDAs, which are now linked to the Consolidated Revenue Fund (CRF), to arrive at the Federal Government’s consolidated cash position. This will continue in the 2024/2025 fiscal years.”
What Nigerian Lawyers Are Saying
Dr. Olisa Agbakoba, SAN, in an exclusive interview with Nairametrics, said the CBN guidelines on Ways and Means are a complex issue intertwined with legal, economic, and political realities.
According to him, the reason for limiting Ways and Means borrowing to 5% by the CBN is to control public sector borrowing requirements, which are generally not appropriated.
He also stated that the 5% cap is intended to control inflation; otherwise, a government might continuously print money to fund its public spending.
However, he maintained that this approach lacks economic basis and fundamentals.
“In simple terms, you cannot borrow without the underlying fundamentals that the economy will benefit from. Therefore, it makes sense to set a ceiling on Ways and Means borrowing. Unfortunately, this legal ceiling is often not observed. In the context of the CBN statement of policy, what it implies is that the CBN, as a lender of last resort, is available to assist the government,” he said.
He further explained that the reason why the government needs the money is of vital importance to relevant stakeholders and the economy.
He noted that if the borrowing is for productive purposes, then Ways and Means “is in principle good.”
On the other hand, Agbakoba stressed that “borrowing to pay recurrent obligations is not a good idea, as it has inflationary pressures and consequences” for the country and its citizens.
Professor Mike Ozekhome, SAN, also in an exclusive interview with Nairametrics, said the CBN’s plan to advance up to 5% of last year’s revenue may appear suspicious or even illegal on the surface.
He noted, however, that the CBN’s enabling statute, namely the CBN Act of 2007, expressly confers on the bank under Section 38, the powers to grant temporary advances to the Federal Government in respect of temporary deficiencies of budget revenue at such rate of interest as the Bank may determine.
He stated that by virtue of Section 38 of the CBN Act, the National Assembly has authorized the apex bank to grant advances (which it calls “Ways and Means”) to the federal government under strict compliance with the provisions of the CBN Act regarding the modalities, conditions for the grant of the advances, as well as their tenor and repayment.
According to him, it would be difficult to fault the CBN on the issue of Ways and Means.
He explained that regarding Ways and Means, a supplementary budget is required to be passed by the National Assembly, in line with Section 81(4) of the Constitution, emphasizing that this is the norm, as the 1999 Constitution is supreme.
He posited that in the absence of authorization by the National Assembly for a supplementary budget to capture the said Ways and Means advances by the CBN to the federal government, the advances become beyond the powers of the apex bank and unconstitutional.
“Beyond this requirement for a supplementary budget before the CBN can grant the federal government any advances, either by way of the so-called ‘Ways and Means’ or under any other guise, it is my humble opinion that this method has always been shown to be opaque and susceptible to multiple layers of corruption. A government should plan thorough budgets, not knee-jerk ad-hoc appropriations that lack transparency and accountability,” Ozekhome said.
For public interest lawyer Opatola Victor, he told Nairametrics in an exclusive interview that Nigerians must pay close attention to the issue of Ways and Means advances granted by the Central Bank of Nigeria (CBN) to the federal government, as the consequences of misuse and abuse can be far-reaching and detrimental to the country’s economic stability.
He said a major concern lies in how the CBN funds these advances and the accountability for the use of these funds, as the apex bank has no independent revenue stream to cover these large sums, leading to the conclusion that it prints vast amounts of money to meet the government’s borrowing needs.
“This unchecked money printing inevitably fuels inflation, as more money circulates without a corresponding increase in goods and services. The consequences of this are felt directly by the average Nigerian in the form of rising prices, diminishing purchasing power, and an overall decline in economic well-being,” he added.
He stated that while the Debt Management Office (DMO) recently issued 37 FGN bonds, effectively converting the unpaid Ways and Means advances into long-term debt that will be serviced with interest over the next 37 years, this move, which seems like a solution, carries significant implications.
“The securitized debt is now part of the national debt, meaning that servicing it will come from future budget allocations. This not only burdens future administrations but also reduces the funds available for critical infrastructure, social services, and other developmental needs,” he added.
The lawyer warned that without vigilant oversight from the public and a concerted effort to hold the government accountable, accumulated debts will continue under different guises.
According to him, “inflation, currency devaluation, and a growing national debt are direct outcomes of the government’s fiscal irresponsibility,” which can erode the economic prospects of ordinary Nigerians.
What You Should Know
The Senate and the House of Representatives recently passed a bill to increase the percentage of Ways and Means loans the Central Bank of Nigeria (CBN) can give to the federal government.
The upper chamber of the Nigerian legislature raised the credit facility obtainable by the federal government from the apex bank from 5% to 10% of the revenue of a fiscal year.
However, Murtala Sabo Sagagi, a member of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), expressed concerns that the proposed increase in the federal government’s Ways and Means limit from 5% to 10% could lead to a significant surge in excess liquidity within the Nigerian economy.
Sagagi noted that this development poses a risk of exacerbating inflationary pressures and undermining the efforts of the CBN to stabilize the economy through its tight monetary policy stance.
In May 2023, shortly before the end of the Muhammadu Buhari government, the Senate approved the request of the then President to restructure the N22.7 trillion loans the CBN extended to the federal government under its Ways and Means provision.
Earlier in the year, the Governor of the Central Bank of Nigeria, Yemi Cardoso, stated that the apex bank will no longer grant Ways and Means to the federal government until the previous loans are repaid.
Cardoso noted that this was one of the measures taken by the apex bank to address the economic issues currently plaguing the country.
The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, recently announced that the federal government has repaid N7.3 trillion in Ways and Means advances to the apex bank.
[Nairametrics]