The furious official reaction to allegations of an opposition governor that ways-and-means funding of the federal budget by the Central Bank of Nigeria (CBN) goes on unabated does little to dispel the assumption that this is still the case. The CBN would need to resume publishing up-to-date figures on this practice, while it can be inferred from budget documents that ways-and-means funding continued at a staggering pace through 2020, in flagrant breach of the CBN Act. While excess liquidity supplied this way is certainly stoking inflation, the CBN also doubled down on another longstanding policy – ‘import substitution’ – by announcing that it would curtail FX supply for the import of wheat and sugar, adding pressure on already staggeringly high food prices.
Last week, Edo State Governor Godwin Obaseki claimed that the federal government had been propping up the monthly revenue allocation to state governments with up to NGN 60bn (USD 147mn) borrowed from the CBN. The government earlier this year announced the securitization of a NGN 10tn (USD 24.4bn) chunk of the ways-and-means debt stock by placing 30-year bonds in the domestic market. In April 2020, in exchange for USD 3.4bn in Covid-19 emergency funding, Abuja had promised to the IMF to phase out recourse to central bank funding by 2025. While Obaseki did not substantiate his claim, which was quickly rebuffed by both CBN Governor Godwin Emefiele and Finance Minister Zainab Ahmed, the lack of transparency surrounding the issue casts doubt on such reassurances.
In fact, the CBN stopped providing data on its advances to the federal government in December 2019, when the figure stood at around NGN 9tn (USD 22bn), which was accumulated in the wake of the 2015/16 oil price crash. However, data from the 2021 budget presentation suggests the government borrowed another NGN 2.8tn (USD 6.8bn) this way in 2020. While the 2007 CBN Act sets a limit for this practice at 5% of the previous year’s government revenue, the government in fact borrowed 62% of its 2019 revenues of NGN 4.5tn (USD 11bn).
Meanwhile, the CBN displayed policy continuity on another front by announcing the addition of wheat and sugar to an ever-growing list of items ineligible to be imported with foreign exchange sourced from the CBN – a measure akin to an outright import ban. Similar to previous interventions of this kind, Nigeria currently produces less than 10% of its wheat and sugar consumption, while domestic production is controlled by a few local conglomerates. As such, the administration’s agriculture-focused ‘import substitution’ economic development policy will add further pressure on food price inflation, which featured a 15-year high at 23% (y/y) in March.