CBN Ways and Means Consumes 107% of FG Oil Revenue.

A report from the Budget Office of the Federation (BOF) disclosed that in the first half of 2023, the Federal Government of Nigeria’s interest payment on Ways and Means debt to the Central Bank of Nigeria (CBN) exceeded the revenue it generated from crude oil.

The report highlighted that the Ways and Means payment to the CBN amounted to N1.68 trillion, which greatly surpassed the government’s crude oil revenue of N813.58 billion. This discrepancy was substantial, representing an excess of 107 percent over the earnings from oil.

The BOF clarified that the government’s debt servicing situation deteriorated primarily due to the surge in Ways and Means payments, which had increased by N966 billion from the initially budgeted amount of N700 billion for the first half of the year. This amount far exceeded the 2023 budget allocation of N1.2 trillion, creating a shortfall in fiscal planning.

The Ways and Means component was primarily responsible for driving the total debt services for the first half of the year up by N109 billion, reaching N3.94 trillion, surpassing the budgeted amount of N3.8 trillion for 2023.

However, the report also highlighted that other debt service components, excluding the Ways and Means payment, experienced significant reductions. Foreign loan servicing decreased by 49 percent, or N528 billion, reaching N530 billion, and domestic debt service charges dropped by 11.1 percent, or N214 billion, settling at N1.7 trillion.

The BOF emphasized, “Debt service costs exceeded budget by N1.68 trillion, mainly due to interest on Ways and Means of N1.89 trillion and generally higher interest rates on borrowings.”

As of July 2023, the Federal Government’s retained revenue stood at N5.19 trillion, approximately 80.5% of the prorata target of N6.44 trillion. This included N813.58 billion from oil revenues (62.6% performance) and N1.84 trillion from non-oil tax revenues (127.7% performance). Collections from corporate income tax (CIT) and value-added tax (VAT) exceeded their respective targets at N1.16 trillion and N234.30 billion, representing 212.4% and 104.8% of their goals.

Customs collections, comprising import duties, excise and fees, and federation account special levies, reached N432.96 billion out of N651.46 billion (66.5% of the target). “Other revenues” amounted to N2.49 trillion, with independent revenue (primarily transfers from government-owned enterprises and ministries) totaling N1.04 trillion.

The practice of the Central Bank’s Ways and Means borrowing has been a source of controversy and debate, with some asserting that it violated Section 38(2) of the CBN Act. This report highlighted the history of this practice, demonstrating how it expanded significantly beyond the legal limits.

In 2017, actual revenue was N2.7 trillion, while Ways and Means reached N1.1 trillion, equivalent to 37.2% of the previous year’s revenue. This departure from Section 38(2) of the CBN Act was evident.

The trend continued in subsequent years, with Ways and Means consistently surpassing the previous year’s revenue by a substantial margin, reflecting the government’s increasing reliance on CBN borrowing.

These findings have sparked significant discussions and concerns regarding the financial stability of the Federal Government. Experts and citizens alike have expressed worry over the growing deficit and the implications for the nation’s fiscal health.