Ozekhome. Agbakoba highlight legal implications of CBN’s 5% limit on Ways&Means advances
Abuja, Nigeria - September 4, 2015: Central Bank of Nigeria headquarters building seen from the street, National Ecumenical Centre in background.
Legal experts have highlighted the potential legal and economic consequences of the Central Bank of Nigeria’s (CBN) reaffirmation to maintain its Ways and Means Advances to the federal government at the 5 per cent threshold for 2024-2025.
This facility, which allows the CBN to advance up to 5 per cent of the previous year’s revenue to cover budget shortfalls, is designed to be repaid within the fiscal year to prevent a long-term fiscal burden.
Senior Advocate of Nigeria (SAN) Dr. Olisa Agbakoba explained the rationale behind limiting the borrowing to 5 per cent. “The CBN’s decision is primarily aimed at controlling public sector borrowing and inflation.
“The idea is to prevent excessive money printing that would otherwise fuel inflation,” he stated.
However, Agbakoba warned that despite these limits, borrowing without sound economic fundamentals could backfire. “If borrowing serves productive purposes, it could be justified, but borrowing just to cover recurrent obligations poses severe inflationary risks,” he added.
Mike Ozekhome, SAN, highlighted the legal intricacies of the CBN’s actions, referencing Section 38 of the CBN Act of 2007, which permits the apex bank to provide temporary advances to the government under strict conditions.
“While it may seem suspicious, the CBN is legally empowered to grant these advances. However, without a supplementary budget from the National Assembly, these advances become unconstitutional,” he noted.
Ozekhome further criticized the lack of transparency in these transactions, stating that the practice could easily become a conduit for corruption if not properly regulated.
Public interest lawyer Opatola Victor echoed these sentiments, raising concerns over how the CBN funds these advances. “The CBN does not have an independent revenue stream, so the bank resorts to printing money to meet the government’s borrowing needs, leading to inflation. This directly impacts Nigerians through rising prices and reduced purchasing power,” he remarked.
While the Debt Management Office (DMO) recently converted N22.7 trillion in unpaid Ways and Means advances into long-term debt, effectively stretching repayment over 37 years, Victor emphasized the long-term consequences.
“This securitized debt is now part of Nigeria’s national debt, which will burden future administrations and limit the funds available for critical development projects,” he warned.
