Ways and Means strictly a CBN affair – experts

A financial expert, Prof. Uche Uwaleke, says the Ways and Means Advances of the Central Bank of Nigeria (CBN) to the Federal Government are strictly within the purview of the apex bank.

Uwaleke, a Professor of Capital Markets at the Nasarawa State University, Keffi, said this in an interview with the News Agency of Nigeria (NAN) on Saturday in Abuja.

He spoke against the backdrop of efforts to securitize the pending N22.7 trillion in Ways and Means Advances, approval of the process by the Senate, and the role of the Debt Management Office (DMO).

According to Uwaleke, the DMO had no role because the ways and means were completely under the control of the CBN.

He said that the DMO could only have played an advisory role when necessary.

“The most the DMO could have done would have been to include the CBN overdraft to the FG as part of the country’s domestic debt stock."

“This will enable the DMO to issue early warning signals whenever the Ways and Means limit as stimulated in the CBN Act is breached,” he said.

Supreme reports that the Ways and Means provision allows the federal government to borrow from the CBN if it needs short-term or emergency finances.

This is to enable the government to fund expected cash receipts from fiscal deficits.

On Wednesday, the Nigerian Senate approved the request of President Muhammadu Buhari to restructure the advances through securitization.

Based on statutory provisions, however, the approval of the Senate and the House of Representatives is required for securitization.

Implementation can, thus, only be done with the concurrent approval of the House of Representatives.

Uwaleke, however, explained that securitization of the N22.7 trillion Ways and Means Advances would afford the Federal Government a "breather" in terms of debt service burden.

According to him, this is in view of the fact that repayment of the N22.7 trillion will now be spread over 40 years with a three-year grace period on the principal sum.

“In respect of the securitization of the Ways and Means, the government debt restructuring arrangement affords it a breather in terms of debt service burden."

“Similarly, the cost of annual debt service will reduce given the concessional rate of nine percent as against the current 20.5 percent interest rate charged on CBN’s Ways and Means."

“The cumulative effect of these would be a reduction in the government budget deficit, freeing up resources that could be applied to more productive areas,” he said.

He claims that since the CBN will be the only one to purchase the securities, there is no longer a concern that they will crowd out the private sector.

“There is also the issue of debt transparency that it engenders."

Before now, CBN's Ways and Means did not make up any of the public debt stock that the Debt Management Office reported.

“Securitization would entail including it as part of the country’s public debt, which makes for transparency,” he said.

He said that, henceforth, adequate safeguards should be put in place to ensure that CBN’s ways and means are curtailed due to their negative impact on the general price level.

“The relevant provisions of the CBN Act should clearly stipulate the conditions under which debt limits can be breached."

“The process should involve approval by the National Assembly as well as stiff sanctions for breaches of the limits provided in the Act without following due process,” he said.

The Ways and Means Advances are money that the Federal Government has already appropriated, according to Okechukwu Unegbu, a past president of the Chattered Institute of Bankers of Nigeria (CIBN).

“It is important to note that the Federal Government does not need the DMO to obtain such facilities from the CBN."

“It does so directly, and sometimes it entails the printing of money."

“The DMO will only be required to record it as debt after it is securitized," he said.

Supreme reports that the CBN is legally authorized to issue Ways and Means Advances to the Federal Government according to Section 38 of the CBN Act, 2007.

The N22.7 trillion in Ways and Means Advances, therefore, do not represent new borrowings but overdrafts by the CBN to the Federal Government.

The Ministry of Finance and the Office of the Accountant-General are responsible for statutorily managing the advances in the Consolidated Revenue Fund, where they are located.