Tinubu opens ‘Ways & Means’ tap to economic instability

In yet its desperation to raise revenue inflow, the Bola Ahmed Tinubu administration has, through the approval of the National Assembly, doubled its capacity to draw loans from the Central Bank of Nigeria (CBN) in the form of ‘Ways & Means’ facility. This was achieved through the amendment of the relevant section of the CBN Act 2007 which restricted such loans to the Federal Government to only five percent of the total revenue of the government in the previous year.

Ways and Means advances are loan facilities used by the CBN to finance the federal government during periods of temporary budget shortfalls, and have been subject to limits imposed by law. Specifically, Section 38 (1) of the CBN Act 2007 states that, “the Bank may grant temporary advances to the Federal Government in respect of temporary deficiency of budget revenue at such rate of interest as the Bank may determine.” And Section 38(2) says, “The total amount of such advances outstanding shall not at any time exceed five percent of the previous year’s actual revenue of the Federal Government.”

Truly, Ways and Means facility from the apex bank means printing more money that is not backed by any productivity and handing over to the federal government. Such loans merely increase money in circulation; and (by more money chasing few goods postulation) go to drive up the rate of inflation. In other words, such financing distorts the country’s monetary base, resulting in macroeconomic instability as excess liquidity is usually injected into the economy.

Besides the distortions such facilities do cause, the more worrisome scenario has been the consistent abuse of the provisions of the CBN Act as it relates to the determination of the amount to be borrowed and lifespan of the loans. Successive administrations in the country have operated the Act more in breach than observance. Thus, rather than retiring the loans as at when due, the Government of the day usually keeps taking more from the apex bank, unchecked. In the past several years, total Ways and Means outstanding usually outstripped the total government revenues.

The immediate past administration of President Muhammadu Buhari has so far proved the most notorious in the abuse of the CBN Act as it relates to the Ways and Means provisions. By the close of the eight-year tenure of the administration in May 2023, a whopping sum of N22.7 trillion was the outstanding sum. The gross breach and violation of the Act led to a crisis of how to recognise the huge sum as official public debt of the federal government contrary to the CBN Act 2007.

Specifically, available data show that in 2019, for instance, actual revenue was N4.12 trillion, while ways and means stood at N3.3 trillion, indicating 85.27 percent of N3.87 trillion that was the total revenue in 2018. Similarly, in 2020, actual revenue was N4.04 trillion, with ways and means standing at N4.4 trillion, representing 107 percent of the previous year’s revenue; meaning that Buhari borrowed seven percent more than the total revenue realised in 2019 from the apex bank.

Yet in violation of the extant laws, the National Assembly, apparently coerced by the Buhari administration, applied what they termed the ‘doctrine of necessity’ and went ahead to make a law for the securitisation of the huge outstanding Ways and Means sum. This caused a quantum jump in the public debt profile of the country; and by end-June 2023, Nigeria’s total public debt stood at a staggering N87.38 trillion, up from N49.85 trillion in March 2023. This is a jump of over 75 percent, owing to the Ways and Means securitisation.

Apparently following the footsteps of President Buhari, Tinubu in the last week of December 2023, asked the National Assembly to securitise “an outstanding N7.3 trillion ways and means debt balance.” According to President Tinubu, it is crucial to securitise the outstanding ways and means advance of the federal government before the end of 2023. He said securitisation will lead to the realisation of some benefits, such as reduction of debt service cost.

The long and short of all these is that within the first six months of its lifespan, the President Tinubu administration had through the ways and means facility, taken the huge sum of N7.3 trillion from the CBN. Hence, justifying his plea to the lawmakers for the securitisation, President Tinubu said: “Interest rate for the securitised ways and means is lowered to nine percent compared to the MPR plus three percent that was previously adopted.”

Although the National Assembly did the bidding of Mr. President, and made law securitising the N7.3 trillion ways and means outstanding by end-2023, the government continued to face the challenge of acute dwindling revenue. The Executive Bill requesting for the doubling of the federal government’s access to ways and means facility from five to ten percent of the previous year’s total income, is proof of the exigency.

The resort of the federal government to levying the controversial “windfall tax” on banks retroactively is also largely due to the pressure of the low revenue profile of the government. In an unprecedented move, President Tinubu had asked the National Assembly to amend the 2023 Finance Act, to enable the Federal Government take fifty percent of the so-called windfall profit the deposit money banks (DMBs) made in 2023 owing to massive naira devaluation.

However, even if covertly, the federal government got the lawmakers to hike the tax rate to 70 percent, and for a period of three years (2023—2025), as against the “one-off” (2023 alone) that the President requested. This quest for improved revenue which led the government to this bind is obviously at the root of asking for a doubling of its capacity for loans through ways and means.

But given the abuses that have attended access to ways and means these past years, it becomes a cause for worry that rather than adopting other creative ways of increasing revenue, the federal government wants to rely more on loans from the CBN. Indeed, it is patently wrong to explain that such loans from the apex bank are to enable the government to prosecute infrastructural projects. Ways and means facilities are really for “temporary shortfalls” in the government’s budgeted revenues.

Experience shows that such autonomous injections (ways and means) go straight to drive up inflation. In recent months, Governor of the CBN himself, Olayemi Cardoso had blamed the subsisting runaway inflationary trend in Nigeria partly on the effect of the huge loans obtained by the President Buhari administration from the apex bank. Truly, pumping more cash into the economy simply by ordering the CBN to print more money is disingenuous and harmful to the economy.

Such huge borrowings, whether securitised or not, go a long way in the accretion of the nation’s public debt. This largely accounts for why Nigeria’s total public debt rose by N24.33 trillion or 25 percent, from N97.34 trillion as of December 2023 to N121.67 trillion in March 2024. Incidentally, the Debt Management Office (DMO) attributed this rise in debt to “new domestic borrowing by the Federal Government to partly fund the deficit in the 2024 budget as well as disbursements by multilateral and bilateral lenders.”

Now that the leeway to easy ways and means loans has been widely expanded for the federal government, the Nigerian economy has been unwittingly opened to the dangers of avalanche of cash injection by the apex bank. Ultimately, the resultant high volume of money in circulation and the consequent inflation leave the citizenry with a drop in purchasing power and impoverishment. This, on the other hand, leaves the apex bank to be perpetually fighting inflation alone by endlessly raising the Monetary Policy Rate (MPR), as the CBN has been doing in the past one year. Where will this take the economy?

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