Olufemi Adeyemi

The Central Bank of Nigeria (CBN) has decided to uphold a five percent cap on Ways and Means Advances to the Federal Government for the fiscal years 2024-2025.

This choice stands in opposition to a recent amendment from the National Assembly, which aimed to raise the borrowing limit from five percent to ten percent.

This information was detailed in the Monetary, Credit, Foreign Trade, and Exchange Policy Guidelines for 2024-2025 released on Tuesday, which outlines the bank's fiscal strategies in response to increasing economic challenges.

Ways and Means Advances are temporary loans provided by the CBN to the Federal Government to address fiscal shortfalls.

According to this policy, the Federal Government can borrow up to five percent of the revenue collected in the previous year.

The CBN emphasized that these advances should be repaid within the same fiscal year they are issued, with a focus on liquidation occurring "as soon as possible."

This decision underscores the apex bank's commitment to preventing long-term debt accumulation while addressing the financial requirements of the government.

In contrast to the National Assembly's proposal for a ten percent borrowing limit, the CBN's stance demonstrates a prudent approach to managing fiscal deficits and promoting stricter financial discipline.

Analysts suggest that the Central Bank of Nigeria's (CBN) cautious approach may indicate its apprehensions regarding inflationary trends and the escalating national debt, even in light of legislative approval for increased borrowing.

This policy also emphasizes the ongoing implementation of the Treasury Single Account (TSA), which serves as a vital reform tool in public financial management.

The TSA integrates all Federal Government accounts into a unified system connected to the Consolidated Revenue Fund (CRF), enabling the government to more effectively oversee its cash flow.

For the fiscal years 2024-2025, the determination of Ways and Means Advances will take into consideration the sub-accounts of various Ministries, Departments, and Agencies (MDAs) within the TSA framework.

The CBN, in partnership with the Office of the Accountant General of the Federation (OAGF), is focused on enhancing TSA operations to promote efficient liquidity management and reduce financial leakages across government sectors.

Interest rates in the forthcoming fiscal years will be shaped by market conditions, with the CBN poised to adjust its Monetary Policy Rate (MPR) as required. The guidelines mandate that banks provide negotiated interest rates for current and savings account deposits.

For special-purpose deposits held as collateral, the interest rate will be set at a minimum of 30% of the MPR for naira-denominated deposits, ensuring that depositors receive a competitive return.

Additionally, the CBN’s guidelines allow for flexibility in interest rates on foreign currency-denominated deposits, which can be negotiated between banks and clients.

This framework illustrates the CBN’s broader initiative to align market dynamics with the regulatory structure governing the financial system.