CBN’s Ways and Means up 20 fold in 7 years to N19.9trn in H1’22 –Afrinvest

By Chinwendu Obienyi

Ways and Means (W&M) claims on the Federal Government rose more than 20 times since 2015 to a new high of N19.9 trillion as at end of the first half of 2022, analysts at Afrinvest have said.

Ways & Means refers to the short-term credit facility provided by the CBN to the Federal Government (to plug budget shortfalls) subject to limits approved by law.

“A retrospective glance revealed that FG’s W&M has risen significantly since 2015.

For context, total W&M liabilities increased by more than twenty-fold (+22.3x) over the last seven years, from barely N856.3 billion in 2015”, said Afrinvest.

Similarly, the ratio of annual W&M disbursement to FG’s Last Fiscal Year (LFY) actual revenue stood at 55.8 per cent as at the first half of:2022 – a long shot from the 5.0 per cent prudential limit prescribed by the CBN Act 2007. Of course, the consistent spike in W&M financing could be traced to the burgeoning FG’s fiscal deficits as a result of the rising expenditure plan amid muted improvement in revenue generation.

According to the CBN data, claims on the FG through W&M rose to a new milestone, up 28.4 per cent year-on-year (y/y) to N19.9 trillion at the end of the first half of 2022 from N15.5 trillion recorded in first half of 2021, thus representing 82.1 per cent of CBN’s total claims on the FG. In the first half of 2022 alone, N2.5 trillion has been disbursed to the FG, an indication that total annualized disbursement might spike to N5.1 trillion (2021: N4.3trillion).

“While one may argue that the CBN is acting on its mandate as the lender of last resort (especially in times of crisis), the fact that the FG can always tap into the coffers of the apex bank incentivizes FG’s fiscal expansion – which has contributed to budget deficit growth by more than 300.0 per cent since 2015 – amid poor revenue generation”, said analysts at Afrinvest.

In addition, the sustained expansion of W&M Liabilities has contributed to the spike in currency in circulation with the monetary base rising by 18.2 per cent y/y in the 12 months to June 2022 – a development we believe contributed to the surging inflationary trend.