Fitch Rating Agency has warned the federal government and the Central Bank of Nigeria (CBN) of the huge economic consequences of the continued borrowing from the apex bank to finance the economy.
The rating agency noted that the limit for the use of the Ways and Means Financing facility by the government should be 5 per cent of the previous year’s fiscal revenues, but the recent borrowing from the CBN has repeatedly exceeded that limit in recent years, and reached around 80 per cent of the FGN’s 2019 revenues in 2020.”
In a statement, Fitch revealed that borrowing from the ways and means financing facility accounted for 30 per cent of the FGN’s debt as at end-2019, pointing out that constant running to the apex bank to get funds could raise risks to macroeconomic stability.
According to Fitch: “Unlike the government, we include this balance in our metrics for Nigeria’s government debt. Borrowing from the facility accounted for 30 per cent of the FGN’s debt at end-2019.”
It warned Nigeria to reduce the use of the facility in 2021 because of its weaknesses in public finance management and the current weak institutional safeguards.
Fitch said it “views the Nigerian government’s fiscal revenue and expenditure projections for 2021 as broadly realistic, which should preclude further significant borrowing by the sovereign from the CBN facility this year. The government may nonetheless use the facility more extensively if the deficit proves wider than forecast or if external financing falls short of planned amounts.”
“Monetary financing of the fiscal deficit raises challenges to monetary policy implementation, as tight management of domestic liquidity is a key tool under the CBN’s policy of prioritising the stability of the Naira. It could also complicate official efforts to bring inflation back under control”, the agency warned.
The latest release from the National Bureau of Statistics showed that inflation rate has risen to above 15 per cent as prices of goods and services have continued to skyrocket.