The Central Bank of Nigeria (CBN) witnessed a substantial decrease in interest income earned from the Federal Government’s overdraft facility in 2024. The bank earned a mere N3.1 billion, a stark contrast to the N1.6 trillion earned in the previous year. This represents a 99.8% year-on-year decline, signaling a significant policy shift aimed at curbing the government’s reliance on the controversial Ways and Means facility. This facility allows the CBN to extend short-term advances to the government to cover budget deficits. The interest income, classified as “loans and receivables” in the CBN’s audited financial statements, is calculated based on the Monetary Policy Rate plus three percentage points. The sharp drop in interest income is primarily attributable to the government’s decision to securitize a substantial portion of the outstanding overdraft balance.
In 2023, the Federal Government converted N22.7 trillion of the accumulated Ways and Means advances into 40-year bonds with a three-year moratorium. This strategic move aimed to mitigate the inflationary pressures exerted by the overdraft and bolster the CBN’s balance sheet. The securitization, approved by the National Assembly, marked a crucial step towards fiscal discipline and transparency. Furthermore, by mid-2024, the government had already repaid N7.3 trillion of this securitized debt, demonstrating a commitment to reducing its reliance on the CBN’s overdraft facility. This commitment was reinforced by the Minister of Finance’s announcement that the government had ceased using the overdraft for debt servicing and adopted a more transparent budgetary framework.
The current CBN Governor, Mr. Olayemi Cardoso, has taken a firm stance on further advances, declaring that the CBN will not grant any new overdrafts to the Federal Government until all outstanding balances are cleared. This decisive action underscores the CBN’s determination to enforce fiscal responsibility and maintain its independence. The Ways and Means facility, while intended to address temporary budget shortfalls, has been a subject of controversy due to its potential to undermine monetary policy and fuel inflation. Critics argue that excessive reliance on this facility blurs the lines between fiscal and monetary functions, creating macroeconomic instability.
Historically, the Ways and Means facility has been governed by Section 38 of the CBN Act, 2007, which permits the apex bank to grant temporary advances to the Federal Government to cover revenue shortfalls, at an interest rate determined by the CBN. However, the implementation of this facility has been fraught with challenges, including concerns about transparency and accountability. In 2023, controversy erupted over the allegedly unauthorized printing of N22.7 trillion by the former CBN Governor, Godwin Emefiele, under the Ways and Means mechanism for the previous administration. This incident highlighted the need for stricter oversight and adherence to established legal procedures.
The controversy surrounding the Ways and Means facility extends beyond the 2023 incident. Analysts and civil society organizations have long expressed concerns about the government’s overdependence on this mechanism, warning of its inflationary consequences and potential to undermine monetary policy effectiveness. In 2021, the Office of the Auditor-General of the Federation flagged N2.73 trillion in allegedly misappropriated interest payments by the CBN, accusing the bank of treating the facility as a loan for its own benefit without proper documentation. This raised serious questions about the transparency and accountability of the CBN’s management of the facility.
The substantial reduction in interest income earned by the CBN from the Ways and Means facility in 2024 signifies a concerted effort to address these long-standing concerns. The government’s commitment to repaying the securitized debt and moving away from reliance on the overdraft is a positive step towards fiscal sustainability. The CBN’s firm stance on not extending further advances until outstanding balances are cleared reinforces this commitment. These actions, coupled with increased transparency and accountability, are crucial for restoring confidence in the management of public finances and ensuring the long-term health of the Nigerian economy. The focus now shifts to ensuring that the government maintains its commitment to fiscal discipline and explores alternative, more sustainable strategies for managing budget deficits.
