CBN says excessive FG borrowing frustrates monetary policy

The Central Bank of Nigeria (CBN) said that excessive borrowing by the federal government from the CBN’s Advanced Means and Means window could thwart the CBN’s monetary policy.

The CBN, as the banker of the Federal Government of Nigeria, manages the majority of government banking activities inside and outside Nigeria.

It also helps the government cover temporary budget deficits by using Ways and Means (W&M) advances, which are limited by law. W&M advances would continue to be available to the FGN to finance deficits up to 5.0% of actual income collected from the previous year, in accordance with section 3.2.15 of the CBN set of guidelines on monetary, credit, foreign trade and exchange rate policy published in September. 2020.

What the CBN says

Due to the growing reliance on CBN, the overdrafts have had negative consequences. In the monetary policy category of the CBN Frequently Asked Questions page, it was asked, “Can the Federal Government prevent the Central Bank of Nigeria from continuing its monetary policy?” “

The umbrella bank answered the question by stating: “Yes, when the federal government exceeds its revenues, the CBN finances the government deficit through advances on ways and means subject (in some cases) to limits set in current regulations, which are sometimes ignored by the federal government. The direct consequences of central bank financing of deficits are distortions or surges in the monetary base, leading to an adverse effect on domestic prices and exchange rates, i.e. macroeconomic instability due to the excess liquidity that has been pumped into the economy. “

The CBN also explains the monetary goals it seeks to achieve by saying: “The ultimate objectives of monetary policy are essentially to control inflation, maintain a healthy balance of payments in order to protect the external value of the national currency and promote an adequate and sustainable level of economic growth and development. These objectives are achieved by controlling the money supply in order to improve price stability (low and stable inflation) and economic growth.

What you should know

  • Nigeria’s appetite for debt has increased since the start of the decade in 2020, as the country added 9.3 trillion naira to its public debt, an average of 4.5 trillion naira each year over the past two years. This compares to an annual average of 2.2 trillion naira over the decade ending December 2019.
  • According to the latest data obtained from the Debt Management Bureau. Nigeria’s public debt soared to 38 trillion naira as of September 30, 2021.
  • Ways and Means Advances is a central bank lending facility to finance the government during temporary budget deficits subject to limits imposed by law.


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