The House of Representatives yesterday approved an additional N1 trillion in Ways and Means advances for the implementation of the 2022 Supplementary Appropriation Act as passed by the National Assembly
The Ways and Means provision allows the government to take loans from the Central Bank of Nigeria (CBN).
This followed the consideration of the report of the Committee on Finance, Banking and Currency and Aids, Loans and Debt Management on the Restructuring of Ways and Means Advances laid by its Chairman, James Faleke before the Committee on Supply.
Also, the Debt Management Office (DMO) yesterday in Abuja explained the modality for the restructuring of the outstanding Ways and Means.
As part of the restructuring arrangements, the DMO stated that the securities will be issued only to the CBN by the Federal Government of Nigeria while members of the public have been excluded from acquiring the securities.
The DMO further clarified that “the securitization of the Ways and Means Advances does not involve new money being given to the FGN as the CBN had already provided the funds to the FGN”.
The House approved the securitization of the total outstanding Ways and Means amount under the following terms: amount, N23,719,703,774,306.90); tenure, 40 years; moratorium on principal repayment, three years; and pricing or interest rate fixed at 9.0 percent per annum
President Muhammadu Buhari had in December last year, written to seek the House for approval for the advance of the N1 trillion from the CBN’s Ways and Means.
Buhari, in the letter, said the Ways and Means Advances by the Central Bank of Nigeria to the Federal Government has been a funding option to cater for short-term, or emergency finance to fund delayed government expected cash receipt of fiscal deficit.
The N22.7 trillion is money borrowed by the federal government from the Central Bank of Nigeria (CBN) through the “ways and means advances”.
President Muhammadu Buhari had asked the Senate to approve the sum in December 2022, but it was opposed by some Senators, who asked that records of what the funds were spent on be provided before approval is given to his request.
“The ways and means advances by the Central Bank of Nigeria to the federal government has been a funding option to the federal government to cater for short-term or emergency finance to fund delayed government-expected cash receipt of fiscal deficit,” Buhari had said in his letter to the national assembly last year.
“The ways and means, balances as of 19th December 2022 is N22.7 trillion.”
Following the disagreement the request caused in the Senate, Ahmad Lawan, Senate president, appointed Gobir to chair an ad hoc committee and liaise with relevant Ministries, Departments, and Agencies (MDAs) on the spending.
Although the Gobir-led panel was meant to have turned in its report in January, it was only able to do so at Wednesday’s sitting.
In the meantime, Buhari asked the Senate to securitize the N22.7 trillion Ways and Means loan, saying it would cost the Federal Government about N1.8 trillion in interest if the National Assembly failed to approve N22.7 trillion in extra-budgetary spending.
Director-General, DMO, Patience Oniha, said the securitization of the ways and means advances would enable the agency to include the debt in the public debt stock, thereby, improving debt transparency.
Using the actual public debt stock of N44 trillion as a basis, Oniha projected that the country’s public debt would hit N77 trillion if the CBN loan was included.
The DMO highlighted the benefits of the securitization including: improving Nigeria’s transparency as the securitized Ways and Means Advances will now be included in the public debt statistics.
“It will reduce the debt service cost as the new interest rate is nine percent p.a. compared to the Monetary Policy Rate plus three percent which translates to 20.5 percent p.a.-MPR – 18.5 per cent+ 3 percent, currently being charged on the Ways and Means Advances,” DMO stated.
The agency noted that “the large savings arising from the much lower interest rate will help reduce the deficit in the Budget and expectedly, the level of New Borrowings”.
Also as part of the restructuring agreement, the DMO noted that the federal government will start paying the nine percent interest in 2023. According to the DMO “provisions for interest on the securitized Ways and Means Advances, starting from 2023, and principal repayments starting from year four, will be made in the annual FGN budgets”.
Shedding more light on this development, Professor Uche Uwaleke of Nasarawa State University told The Nation that “it is restructuring. The Amortisation means both interest and Principal will be spread over 37 years. The tenure is 40 years but the first three years will be a moratorium.
During the moratorium, only the interest will be paid after the first three years both the interest and Principal will now be added and shared over 37 years”
“Before, the fear was that if you issue that security to the public once the pension funds of N14trillion invest the money will go that was the fear but now the public will not be involved the CBN will carry their burden because the CBN has the capacity to absorb it”.
He further explained that “the CBN is not parting with anything it is not a buy-back arrangement. After 40 years the CBN will return the bond (instrument) back to the government”.
