In a move that has raised eyebrows and sparked debate across Nigeria, the Senate on Wednesday amended the Central Bank of Nigeria (CBN) Act, increasing the borrowing limit the apex bank can offer the federal government from five percent to 10 percent.
This adjustment, swiftly approved during an emergency plenary session led by Senate President Godswill Akpabio, marks a significant shift in Nigeria’s fiscal policy, with potential implications for the nation’s economic stability.
The borrowing facility, commonly referred to as Ways and Means, is a financial mechanism through which the CBN provides short-term loans to the federal government to cover budgetary shortfalls. The CBN Act capped this borrowing at five percent of the previous year’s revenue, a measure designed to prevent excessive reliance on central bank financing. However, this limit was recklessly breached by the preceding government of Muhammadu Buhari, in a show of fiscal indiscipline that resulted in inflation.
During the session on Wednesday, the amendment was presented, debated, and passed with surprising speed. The Senate President, Mr. Akpabio, said that the increased borrowing limit was necessary to support the government in meeting its financial obligations.
He urged Nigerians to remain peaceful in their advocacy for better governance, stating, “We urge Nigerians to shun any act of violence. The government is doing a lot, we in the parliament are also doing a lot.”
The Ways and Means facility has been a recurring feature in Nigeria’s fiscal discussion, with the Debt Management Office (DMO) revealing that a staggering N22.7 trillion borrowed from the CBN by the federal government was securitized in May 2023. The DMO also noted that the securitization of the ways and means debt was responsible for the N24.33 trillion increase in the debt stock, which took Nigeria’s public debt to N121.67 trillion in March.
This debt accounted for more than 40 percent of the money supply in the economy, highlighting the extent of the government’s reliance on this funding source. More recently, an ad-hoc committee chaired by Senator Isah Jibrin was established to investigate a N30 trillion Ways and Means debt incurred by the previous administration under President Muhammadu Buhari. The committee has yet to submit its findings, leaving many questions unanswered about the transparency and sustainability of this borrowing practice.
During the debate on the bill’s amendment, Senate Leader Opeyemi Bamidele defended the increase, arguing that it was essential for the federal government to address immediate and future financial needs.
“The essence of the bill is to enable the federal government to meet its immediate and future obligations due to the increasing need for funds to finance the budget deficit and other expenses,” Bamidele stated, adding that the advances from the CBN are typically short-term loans intended to be repaid by the government.
Bamidele outlined several potential benefits of the increased borrowing limit, including the provision of immediate funds to cover budget shortfalls, support for essential government projects, and the maintenance of financial market stability. He also suggested that the increased borrowing could stimulate economic activity and potentially create jobs by injecting money into the economy.
“Lower the government borrowing cost by providing cheaper funds than the traditional borrowing method,” Bamidele added, suggesting that this approach could be more cost-effective for the government.
House of Representatives Disagreed
However, not all lawmakers agreed. In the House of Representatives, the bill’s passage was met with significant opposition and controversy. During a plenary session, opposition parties staged a walkout after a proposed amendment by Kingsley Chinda, which suggested a two percent borrowing increase, was rejected. Chinda argued that a lower limit would enhance transparency in federal government spending, but his proposal was overruled by James Faleka, chairman of the finance committee, who argued against going below the existing five percent threshold.
The debate reached a peak when Ibrahim Isiaka, a lawmaker from Ogun state, proposed raising the borrowing limit to 10 percent, a motion that was subsequently supported by former Deputy Speaker Idris Wase. Despite a loud dissenting voice from the opposition, Deputy Speaker Benjamin Kalu ruled in favor of the amendment, sparking further discord and leading to a walkout by opposition lawmakers led by Chinda. The bill was eventually adopted and passed for a third reading, even though it was opposed by most lawmakers.
The decision to increase the Ways and Means borrowing limit has not been without criticism. Many experts and analysts have expressed concern over the potential inflationary impact of increased government borrowing. The CBN’s reliance on printing money to fund government deficits has been identified as a significant factor contributing to Nigeria’s high inflation rates.
CBN Governor Olayemi Cardoso recently commented on the issue, stating, “Yes, inflation needs to be tamed in Nigeria, but it is important to understand how we got here. When you print money for Ways and Means, it has its consequences, and we are paying for those consequences right now.”
In February, Cardoso said that the CBN would no longer grant Ways and Means to the federal government unless the outstanding balance is settled.
Against this backdrop, the passage of the bill is seen by some as a reckless move that could exacerbate Nigeria’s economic challenges. It is believed that the increase in borrowing could lead to further inflationary pressures, eroding the purchasing power of Nigerians and potentially destabilizing the economy. Critics argue that rather than increasing borrowing limits, the government should focus on improving revenue generation and reducing wasteful spending.
