CBN issues new guidelines on Ways and Means to FG

The Central Bank of Nigeria (CBN) says it will continue to maintain the constitutional limit on Ways and Means Advances to the federal government, capping the advances at 5 per cent of the previous year’s actual revenue collection.

This limit is part of the CBN’s monetary, credit, foreign trade, and exchange policy guidelines for the fiscal years 2024-2025, published on Tuesday.

“Ways and Means Advances shall continue to be available to the Federal Government to finance deficits in its budgetary operations to a maximum of 5.0 per cent of the previous year’s actual collected revenue. Such advances shall be liquidated as soon as possible and shall in any event be repayable at the end of the year in which it was granted,” it said.

In line with the Treasury Single Account (TSA) framework, the new guidelines also stipulate that the calculation of these advances will now take into account the sub-accounts of Ministries, Departments, and Agencies (MDAs), which are linked to the Consolidated Revenue Fund (CRF).

This means that the federal government’s consolidated cash position will be more accurately reflected, providing a clearer picture of available resources and enhancing transparency in public financial management.

The CBN also clarified that any Ways and Means Advances provided must be repaid by the end of the fiscal year in which they were granted, reinforcing the principle of short-term borrowing.

The CBN Act says the CBN may grant temporary advances to the federal government in respect of temporary deficit of budget revenue at such rate as the bank may determine. It, however, warns that the total amount of such advances outstanding “shall not at any time exceed five (5) percent of the previous year’s actual revenue of the Federal Government.”

In addition, it stipulates that, “All advances shall be repaid as soon as possible and shall, in any event, be repayable by the end of the Federal Government financial year in which they are granted and if such advances remain unpaid at the end of the year, the power of the bank to grant such further advances in any subsequent year shall not be exercisable, unless the outstanding advances have been repaid.”

Meanwhile, the Senate and House of Representatives recently passed a bill to raise the limit on Ways and Means loans that the CBN can extend to the federal government.

The upper chamber of Nigeria’s legislature increased the credit facility available to the federal government from the central bank from 5 per cent to 10 per cent of annual revenue.

The federal government had, in the past, relied heavily on the loan facility to fund the budget.

As of 2023, the facility had surged over 2,900 percent over the past seven years, reaching an unprecedented N23.7 trillion.

This sharp rise, which breached legal limits, fuelled inflationary pressures and exacerbated Nigeria’s debt burden.

Earlier in the year, the Governor of the CBN, Yemi Cardoso, announced that the bank would cease issuing Ways and Means advances to the federal government until outstanding loans were repaid.

He highlighted this as one of the critical measures the bank has adopted to address the country’s current economic challenges.