According to the Q1, 2023 Budget Implementation Report released by the Budget Office of the Federation, the Federal Government of Nigeria paid a significant interest amounting to N912.32 billion in the first quarter of 2023 on loans obtained from the Central Bank of Nigeria through Ways and Means Advances.
This figure represents a substantial increase of 161.47 percent compared to the N348.92 billion paid in the same quarter of the previous year, as reported by Saturday PUNCH.
CBN loan servicing
Federal Government had allocated N1.2 trillion for servicing the loans acquired through Ways and Means Advances from the CBN. This budget allocation implied an approximate quarterly expenditure of N300 billion.
However, the government had already spent approximately 76.03 percent of its budget for interest payments on these advances during the first quarter of 2023.
Ways and Means Advances are a form of loan facility provided by the Central Bank to assist the government during periods of temporary budget shortfalls, with limits imposed by law.
According to Section 38 of the CBN Act, 2007, the central bank can offer temporary advances to the Federal Government to address temporary budget revenue shortfalls, determining the interest rate for such advances.
The Act specifies that the total amount of such advances outstanding should not exceed five percent of the previous year’s actual revenue of the Federal Government.
All advances should be repaid as soon as possible and must be repaid by the end of the Federal Government’s financial year in which they were granted.
If such advances remain unpaid at the end of the year, the central bank’s authority to grant further advances in subsequent years is restricted, unless the outstanding advances have been repaid.
However, the 9th National Assembly, amid controversy, amended the CBN Act to increase the limit on Ways and Means Advances from five to 15 percent of the Federal Government’s previous year’s revenue.
This decision was made in response to criticism that the Federal Government had exceeded the five percent threshold of the CBN in its borrowing through WMAs.