Guy! I fit see 22 trillion for your hand?
The Story of the Nigerian Government’s Ways and means loans
Buhari entered office in 2015 and took over a country set on course for a recession. Low oil prices had impacted the country’s primary source of revenue. The then-new government had a tough decision on how to go about its budget work. Do they take debt or cut costs? They chose to borrow. They borrowed domestically via treasury bills and internationally via eurobonds. This borrowing spree has now culminated in a c.300 per cent increase in the total debt stock (from 12 trillion Naira to 46 trillion Naira).
We have covered this disturbing rise in Nigeria’s debt profile before. However, the Nigerian government has also been drawing from a secret stash. Over the last years, the CBN has loaned over 21 trillion Naira to the Nigerian government through a programme called Ways and Means (W&M). The W&M loan balance has ballooned from about 860 billion Naira in 2014 to over 22 trillion Naira in 2022.
Ways and means loans are loans to governments by central banks to help bridge funding gaps. These loans are usually subject to regulations to avoid abuse. The laws governing the ways and means loans in Nigeria are found in the CBN Act of 2005.
The loans have been used to bridge the Nigerian government’s budgetary deficits. One of the reasons cited by analysts for the increased adoption of this facility is that the loans do not need legislative approval, so they are easier to access. They also come with the added benefit of being off-balance-sheet, i.e. they are not recorded as part of the official debt stock.
However, the government does pay interest on these loans. As of the 2023 budget, the loans' interest was estimated to be 1.8 trillion Naira.
The debt's size has prompted the federal government to securitise the loan. The securitisation of the loan will reduce interest payment costs. It will, however, move the debt to the official debt pile, increasing our total debt balance to its actual figure of 69 trillion Naira.
So what?
The use of W&M by the current administration has mainly been problematic for three reasons.
First, on the matter of monetary autonomy. Under the Buhari Administration, the Central Bank has been very cozy with the federal government. They have carried out multiple programmes that are naturally outside their mandate. This has created a situation where the Central Bank's autonomy has been brought into question. And this “ways and means” relationship has not improved the situation.
Secondly, how the loan has been used has violated the laws that established it. The law governing the use of ways and means states that the government can borrow up to 5% of the revenue generated in the year prior. As of 2022, the total W&M balance was 411% of the 2022 budget. The current size of the loan balance is due to the huge debt servicing cost.
Finally, the excessive use of the Central Bank generated money that has not created any significant growth in the economy (this is because most of it was used to pay salaries and repay the existing debt) and has increased the money supply contributing to the current inflationary state of the Nigerian economy.
The lack of respect for laws governing fiscal responsibility has been a feature of the Nigerian government over the past eight years. The inability to raise revenue, make decisive budget cuts or, at the very least, block leakages have gotten us to our current 69 trillion naira problem. The coming administration and those after them must deal with the debt load.