The Central Bank of Nigeria (CBN) has confirmed it will keep its Ways and Means Advances to the Federal Government capped at 5% for the fiscal years 2024-2025. This decision was outlined in the Monetary, Credit, Foreign Trade, and Exchange Policy Guidelines published on Tuesday.
This stance contrasts with a National Assembly bill that raised the borrowing limit from 5% to 10%. Under the current guidelines, the CBN may advance up to 5% of the previous year’s actual revenue to the Federal Government. These advances must be repaid within the same year to avoid long-term fiscal impacts.
The guidelines align with the Medium-Term Fiscal Framework (MTFF), which aims to stabilize the macroeconomic environment and manage fiscal policies effectively. The document specifies, “Ways and Means Advances shall continue to be available to the Federal Government to finance budgetary deficits up to 5.0% of the previous year’s actual collected revenue. These advances shall be repaid as soon as possible and by the end of the year in which they were granted.”
Additionally, the CBN stated that future advances will be calculated after accounting for the sub-accounts of various ministries, departments, and agencies (MDAs), now linked to the Consolidated Revenue Fund. This adjustment will be maintained through the 2024/2025 fiscal years.
Ways and Means Advances are short-term loans provided by the CBN to cover temporary budget deficits, subject to statutory limits. Section 38 of the CBN Act, 2007, permits such advances, though they are typically granted at the bank’s discretion.
The decision comes amid controversy over previous advances. In 2023, former CBN Governor Godwin Emefiele faced criticism for allegedly authorizing N22.7 trillion in Ways and Means advances without National Assembly approval, contributing to high inflation rates and increased money supply.
In a February 2024 Senate Committee meeting, CBN Governor Olayemi Cardoso stated that the bank would suspend new Ways and Means advances until existing loans were repaid, a measure aimed at addressing economic challenges.
Finance Minister Wale Edun recently announced the Federal Government’s repayment of N7.3 trillion in Ways and Means Advances to the CBN.
The CBN’s guidelines also address potential risks, including the removal of fuel subsidies, increased external debt servicing, and lower import bills, which could impact the growth of external reserves for 2024/2025.
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