The Central Bank of Nigeria (CBN) has stated that excessive borrowing by the Federal Government from the CBN’s Means and Ways Advances window could frustrate CBN’s monetary policy.
The CBN, as the Federal Government of Nigeria’s banker, handles the majority of the government’s banking business both inside and outside Nigeria.
It also helps the government cover temporary budget gaps using so-called Ways and Means advances (W&M), which are limited by law. W&M advances would continue to be available to the FGN to finance deficits up to 5.0% of the previous year’s real collected revenue, according to section 3.2.15 of the CBN’s Monetary, Credit, Foreign Trade, and Exchange Policy set of guidelines released in September 2020.
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According to the increasing reliance on CBN, overdrafts has come with negative consequences. Under the monetary policy category of the CBN’s Frequently Asked Questions page, it was asked, “Can the Federal Government frustrate the Central Bank of Nigeria from pursuing its monetary policy?”
The apex bank responded to the question stating, “Yes when the Federal government exceeds its revenue, the CBN finance government deficit through Ways and Means Advances subject (in some cases) to the limits set in the existing regulations, which are sometimes disregarded by the Federal Government. The direct consequences of the central bank’s financing of deficits are distortions or surges in the monetary base, leading to an adverse effect on domestic prices and exchange rates i.e macroeconomic instability because of excess liquidity that has been injected into the economy.”
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The CBN also explain the monetary goals it seeks to achieve saying, ”The ultimate goals of monetary policy are basically to control inflation, maintain a healthy balance of payment position in order to safeguard the external value of national currency and promote adequate and sustainable level of economic growth and development. These goals are achieved by controlling money supply in order to enhance price stability (low and stable inflation) and economic growth.“
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© 2022 Nairametrics
© 2022 Nairametrics
