An investment banking and research company, Afrinvest West Africa Limited in its latest weekly report has observed that from the Central Bank of Nigeria (CBN) database, total credit advanced to the Federal Government through Ways & Means facility by the lender of last resort rose to ₦16.1 trillion in August 2021, representing a Year-to-Date (YTD) increase of ₦3.0 trillion.

The Ways & Means facility refers to an interest-bearing overdraft granted to the government by the central bank to plug the budget financing gap that may arise due to a temporary shortfall in revenue in a fiscal year.

The report titled: “Large Scale Ways & Means Financing: Has this Model Come to Stay?” noted that unlike other deficit financing instruments such as Bond and Treasury Bills which are benchmarked against the funding need and/or economic size, Way & Means is capped to a ratio of the immediate year revenue, in the case of Nigeria, 5.0 per cent of the actual revenue of the preceding year.

According to Afrinvest, the YTD increase (₦3.0 trilion) translates to a monthly average of ₦377.8 billion, higher than the average of ₦365.8 billion in the pandemic-ravaged year of 2020.

“If this pace is sustained in the remaining four months to the end of 2021 (September inclusive), total Ways & Means support to the Federal Government would reach ₦17.6 trillion (2020: ₦13.1 trillion), culminating in an annual increase of ₦4.5 trillion (2020: ₦4.4 trillion).

“Obviously, this is a contravention of the CBN Act 2007, section 38(2) which stipulated that the total amount of advancement to the FG from the CBN shall not at any time exceed 5.0 per cent of the previous year’s actual revenue of the FG,” it stated.

“In 2020, the Federal Government retained revenue printed at ₦3.9 trillion. By implication, Ways & Means advancement in the first eight months of 2021 is 76.9 per cent of Federal Government’s revenue in 2020, and this could increase to 115.4 per cent by year end if the monthly average trend is sustained”, Afrinvest stated.

According to the firm, nonetheless, while a case could be made for the large Ways & Means support in 2020 (as the pandemic wreaked havoc), it defies logic to see that Ways & Means provision as a percentage of previous year’s revenue were also above 30.0 per cent in 2017, 2018 and 2019 when the economy enjoyed relative stability. Furthermore, section 38(3a) of the CBN’s Act stipulated that all advances made pursuant to this section shall be repaid as soon as possible and shall, in any event, be repayable by the end of the Federal Government financial year.