CBN Reaffirms Borrowing Limits for Government, Defying National Assembly’s Push for Higher Cap

The Central Bank of Nigeria (CBN) has confirmed it will continue to limit its Ways and Means Advances to the Federal Government at five per cent of the previous year’s actual collected revenue for the fiscal years 2024 and 2025, defying a recent move by the National Assembly to double the borrowing limit. The announcement, made in the apex bank’s Monetary, Credit, Foreign Trade, and Exchange Policy Guidelines released on Tuesday, signals a measured approach to government borrowing in an effort to stabilise Nigeria’s fragile economy.

The Ways and Means Advances, a short-term loan facility designed to help the government cover temporary budget deficits, will remain capped at five per cent, according to the guidelines. This stands in contrast to a bill passed by the National Assembly that raised the borrowing limit to 10 per cent. Despite this legislative shift, the CBN’s guidelines emphasise the importance of keeping the debt ceiling in check to avoid exacerbating the country’s fiscal burden.

“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,” the CBN noted in the document. It added that such advances must be repaid by the end of the fiscal year to prevent long-term debt accumulation.

The CBN’s stance on maintaining the five per cent borrowing limit reflects its cautious approach amid Nigeria’s ongoing economic recovery. The document highlighted the importance of managing expectations and implementing policies that address economic shocks while ensuring macroeconomic stability.

This decision comes against the backdrop of a contentious debate over the role of the CBN in financing government shortfalls. In 2023, the former CBN Governor, Godwin Emefiele, was embroiled in controversy for allegedly printing ₦22.7 trillion for the Federal Government under the Ways and Means facility without the necessary approval from the National Assembly. Critics argue that this excessive lending contributed to inflationary pressures and increased money supply in the economy.

CBN Governor Olayemi Cardoso, in a Senate Committee meeting in February 2024, indicated a shift in policy, vowing that the bank would no longer provide new Ways and Means Advances until the government repaid outstanding loans. This approach is seen as part of broader efforts to address the economic challenges Nigeria faces, including inflation and currency volatility.

While the Federal Government has made some progress in repaying these advances—having repaid ₦7.3 trillion according to Finance Minister Wale Edun—the outstanding debt remains a significant concern for the country’s fiscal health.

The CBN’s 218-page policy document also warns of potential economic challenges ahead. The removal of fuel subsidies, lower import bills, and rising external debt service obligations could hinder growth in Nigeria’s external reserves over the next two years. These risks further complicate the task of maintaining economic stability, especially as the country grapples with inflation, exchange rate fluctuations, and the fallout from ongoing fuel price hikes.

As the Federal Government and the CBN navigate these turbulent economic waters, the decision to hold firm on the borrowing cap signals a commitment to fiscal discipline—a move aimed at balancing short-term budgetary needs with the long-term health of the economy.