CBN loans to FG fueling inflation, interest payment to gulp 62% revenue by 2027 – World Bank

The World Bank has said that interest payments on the Nigerian government’s borrowing from the Central Bank of Nigeria (CBN) will gulp over 62 per cent of revenue by 2027.

The international financial organisation made this known in the latest edition of its Nigeria development update (NDU) titled, ‘Nigeria’s choice’.

The Nigerian government has been borrowing from the CBN through ways and means advances, a loan facility through which the CBN finances the government’s budget deficits.

A PREMIUM TIMES’ analysis found that Nigeria’s advances to the federal government in the last seven years rose to N23.8 trillion, an unprecedented rise that violated the law, stoked inflation and worsened the country’s debt burden.

Last November, the IMF warned that the CBN’s continued financing of the country’s deficit through ways and means will complicate the effort to contain inflation.

In November 2021, the World Bank had listed the sizeable “fiscal deficit financing” by the CBN as one of the factors undermining the business environment, compounding underlying constraints on domestic revenue mobilization, foreign investment, human capital development, and the delivery of public services.

Earlier in 2017, a member of the Monetary Policy Committee, Doyin Salami, criticised the CBN’s “massive injections of cash” into the economy, accusing the bank of serving as a “piggy bank” for the government against its own rules.

In its latest report, the World Bank said interest payments on such advances will increase by 2.4 percentage points of the gross domestic products (GDP) between 2018 and 2027.

The global institution added that financing of the fiscal deficit through Ways and Means continues to fuel inflation by increasing liquidity in the money market.

Rising Inflation

The report added that at least five million Nigerians were pushed into poverty as a result of rising inflation between January and September 2022.

The World Bank estimates that between 2020 and 2021, inflation pushed about eight million more Nigerians below the poverty line increasing the total number of poor people to about 90 million.

But higher inflation in 2022 is estimated to have pushed an additional five million Nigerians into poverty between January and September 2022, mainly through higher prices of local staples, such as rice, bread, yam, and wheat, especially in non-rural areas.

The report said that inflation is partly the result of monetary, exchange rate and fiscal policy decisions.

“After loosening monetary policy through September 2020 to help combat the economic impact of the pandemic, the CBN left its monetary policy rate unaltered until May 2022, making it one of the last emerging economies to begin tightening policy,” the report said.

“CBN has implemented measures to curtail inflation, raising the monetary policy rate by 500 bps and the cash reserve ratio by 500 bps.

“However, exchange rate management, which has widened the gap between the parallel rate and official rate from 37 per cent in January 2022 to 71 per cent in October 2022, and the provision of development finance at subsidized rates, have compromised the effectiveness of monetary policy.”

Consequently, it said, the CBN’s inflation target of 6–9 per cent, which has not been achieved since 2016, remains unlikely to be met in the near term.