The Nigerian Senate has passed a bill amending the Central Bank of Nigeria (CBN) Act to allow the federal government to double its Ways and Means advances from 5% to 10% of the previous year’s revenues.

This amendment unlocks N610 billion in central bank loans for 2024, yet significant legal obstacles remain in the path of accessing the funds.

The Senate’s decision comes as the federal government grapples with financial constraints and seeks innovative solutions to stimulate economic growth.

Under the previous limit, the CBN could only extend loans equivalent to 5% of the federal government’s revenues from the previous year.

With 2023 revenues reported at N6.1 trillion, the new amendment effectively raises the borrowing cap to N610 billion.

However, Section 38 of the CBN Act, which was also amended, includes a critical stipulation that the federal government cannot borrow from the CBN if there are any outstanding balances.

According to the Act, “All Advances made (to the federal government) shall be repaid…by the end of the financial year in which they are granted and if such advances remain unpaid at the end of the year, the power of the Bank to grant such further advances in any subsequent year shall not be exercisable, unless the outstanding advances have been repaid.”

The federal government currently owes the CBN over N30 trillion, significantly complicating the new borrowing plan.

Although the CBN’s records show an outstanding balance of N8.21 trillion in Ways and Means advances at the end of December 2023, when including the N22.7 trillion in securitized loans, the total debt reaches N30.91 trillion.

This legal catch has sparked a debate among financial experts and policymakers. “The reality is that the government can no longer borrow via Ways and Means unless they pay back the outstanding N30 trillion,” a senior business leader told BusinessDay.

“Increasing the limit is of no consequence as it is also illegal to securitize Ways and Means to repay the CBN. What is required is comprehensive remedial legislation.”

Olayemi Cardoso, who was appointed as the CBN governor late last year, has expressed his awareness of the legal constraints and emphasized the need for fiscal responsibility.

Cardoso has reiterated that the CBN will not grant further loans to the federal government until the existing loans are repaid, citing compliance with Section 38 of the CBN Act.

“This is also in compliance with Section 38 of the CBN Act (2007). The Bank is no longer at liberty to grant further Ways and Means advances to the Federal Government until the outstanding balance as of December 31, 2023, is fully settled,” Cardoso told lawmakers.

Finance Minister Wale Edun has also declared an end to the government’s reliance on CBN loans, acknowledging the necessity for fiscal discipline and transparency.

“I am pleased to note the fiscal authorities’ efforts in discontinuing Ways and Means advances,” Edun stated during a Senate session.

The amendment’s timing is critical as Nigeria faces rising inflation fueled by a surge in money supply resulting from the extensive use of Ways and Means advances.

The CBN has tightened monetary policy to counter inflationary pressures, which were exacerbated by the substantial increase in money supply from N52.01 trillion in January 2023 to N68.25 trillion in November 2023.

The Senate’s approval of the N610 billion CBN loan marks a significant step towards addressing Nigeria’s economic challenges, but the outstanding debt must be resolved to make the new borrowing feasible.

The Federal Government of Nigeria has formally requested a $500 million loan from the World Bank to improve dam safety and enhance water resource management across the nation.

This loan, aimed at addressing the country’s pressing water security challenges, is expected to significantly boost agricultural productivity through the Sustainable Power and Irrigation for Nigeria (SPIN) Project.

The request was detailed in a World Bank Project Information Document released on Monday, highlighting the SPIN project’s focus on four critical areas: institutional strengthening and capacity building, irrigation modernization, improvements in dam operations and safety, and effective project management.

The World Bank’s proposed approval date for the SPIN project is September 26, 2024.

The project aims to reinforce federal and state institutions responsible for water resource management by developing national dam safety guidelines, providing training for water resources and irrigation management, and creating a comprehensive hydropower master plan.

“Nigeria faces water security challenges which impact water availability for drinking, energy, and food production, exacerbated by climate change,” the document stated. “Harnessing water storage and ensuring dam safety are central to climate change adaptation and mitigation in Nigeria. It is crucial for improving water management for supply, irrigation, and hydropower generation, and for protecting against floods and droughts.”

Nigeria boasts over 400 dams with an estimated total combined storage of 59 billion cubic meters. Of these, 46% are federally owned and managed by the Federal Ministry of Water Resources and Sanitation through River Basin Development Authorities, while 48% are state-owned.

However, many dams remain incomplete, and over 50% of the large dams built in the 1970s and 80s require rehabilitation due to inadequate budgets, human resources, and capacity for proper management, operation, and maintenance.

The 2022 floods, which caused an estimated $6.7 billion in economic damage, underscored the urgent need for improved dam safety and water management.

The SPIN project intends to rehabilitate and modernize 40,000 hectares of irrigated land and establish Water User Associations to manage these irrigation schemes efficiently.

Additionally, the project will focus on rehabilitating and enhancing the safety of priority dams, conducting risk assessments, preparing emergency action plans, and implementing structural safety improvements.

To ensure effective implementation, monitoring, and evaluation, the project will establish a Federal Project Management Unit and Technical Units at both federal and state levels.

This initiative by the Federal Government represents a significant step towards securing Nigeria’s water resources, ensuring sustainable agricultural practices, and protecting the country from the adverse effects of climate change.

Nigeria’s fiscal landscape is facing unprecedented challenges as debt repayments now exceed both recurrent and capital expenditures.

Tilewa Adebajo, CEO of The CFG Advisory, stated these pressing issues during his presentation on “Nigeria’s Fiscal Environment in an Era of Monetary Policy Tightening” at the Finance Correspondents Association of Nigeria (FICAN) bi-monthly forum in Lagos.

According to Adebajo, Nigeria’s debt burden has surged to $130 billion, with 95% of the country’s revenue now allocated to debt servicing.

This development raises concerns about the sustainability of the nation’s fiscal policies and the potential for a debt default akin to those seen in Ghana, Zambia, and Ethiopia.

The National Bureau of Statistics (NBS) reported that Nigeria’s public debt stock soared from N97.34 trillion in December 2023 to N121.67 trillion in March 2024.

Despite allocating N8.7 trillion for capital expenditure in the 2024 budget, only N1.32 trillion is directed towards infrastructure development, highlighting the severe underfunding of critical sectors.

“The current debt levels are unsustainable,” Adebajo warned. “With an additional $10 billion from the 2024 budget deficit, we must commence discussions on restructuring both domestic and external debt to avoid severe economic repercussions.”

Nigeria’s economic indicators paint a grim picture. The country remains in stagflation, grappling with high inflation and stagnant growth.

The introduction of the Nigerian Autonomous Foreign Exchange Market (NAFEM) and the removal of fuel subsidies have boosted the Federation Account Allocation Committee (FAAC) revenues by 130% from May to November 2023, yet these measures have not sufficed to stabilize the economy.

Foreign Direct Investment has plummeted to under $1 billion, the lowest in history. Power transmission and distribution infrastructure remains poor, stifling industrial growth and economic productivity.

The macroeconomic situation has deteriorated over the last seven years, with GDP shrinking by an estimated $180-200 billion, now standing at $390 billion.

Adebajo emphasized the dire need for structural reforms. “Nigeria requires a GDP growth rate of 8-10% to sustain its population of 200 million. Current growth at 3% is insufficient, with 135 million Nigerians trapped in poverty and 40% unemployment,” he noted.

“Dwindling reserves and increasing credit default swap premiums have led to a Caa1 junk bond rating status.”

Despite these challenges, Adebajo expressed cautious optimism. “The fundamentals of the Nigerian economy remain sound. However, poor economic leadership has stifled growth. With a new, highly rated economic management team in place, there is hope for significant improvement if reform policies are implemented sincerely and effectively.”

Adebajo proposed several solutions to address the economic crisis:

1. Debt Restructuring: Engage creditors to restructure and extend debt maturities, allowing for manageable repayments and reduced interest rates.
2. Fiscal Discipline: Reduce non-essential government spending, eliminate wasteful subsidies, and enhance public service efficiency.
3. Revenue Expansion: Broaden the tax base, improve collection, and introduce new revenue streams such as value-added tax (VAT) and property taxes.
4. Transparency: Increase transparency and accountability in government spending to build public trust and attract foreign investment.
5. Monetary Policy: Maintain tight monetary policies to combat inflation and attract foreign investment.
6. Competitive Exchange Rate: Stimulate exports and reduce import reliance by maintaining a competitive exchange rate.
7. International Collaboration: Leverage regional and international partnerships for financial assistance, expertise, and market opportunities.
8. Public Engagement: Engage with the public, businesses, and civil society to garner support for economic reforms.

Adebajo concluded with a call for action, stressing the importance of commitment from the new economic management team to drive the necessary reforms and steer Nigeria out of its current economic quagmire.

“The success or failure of our economy hinges on their ability to deliver on reform policies and achieve sustainable GDP growth targets,” he asserted.