The Nigerian Senate has tabled a measure to modify the Central Bank of Nigeria (CBN) Act of 2007, proposing a 21-year prison sentence for violations of the CBN Act’s limit on ways and means advances.
Senator Mukhail Adetokunbo Abiru (Lagos East) is the lead sponsor of this proposed legislation, which would toughen up the penalties for abusing naira and improve the CBN’s capacity to accomplish its main goals.
With a copy of the amendments seen by The News Chronicle, the bill, titled “A Bill for an Act to Amend the Central Bank of Nigeria Act No. 7 of 2007,” amends Section 38 of the Principal Act by enacting strict regulations to control the temporary advances that the CBN grants to the Federal Government.
The amendment bill states that anyone found guilty of breaking any of the terms of Section 38 will have to reimburse any amount that exceeds the specified limitations or face a minimum of 21 years in jail without the possibility of a fine.
It stated: “Any individual or group of individuals who violates or participates in the violation of this section 38 shall be guilty of an offense and shall reimburse any amount that surpasses the limitations established in this section. In addition, they shall be subject to a minimum 21-year jail sentence without the possibility of a fine.”
This modification is being made at the same time that the Economic and Financial Crimes Commission (EFCC) is suing former CBN governor Godwin Emefiele, whose term is noted for exceeding the CBN Act limit.
Advance restrictions
According to the amended bill, the total amount of advances made, excluding earnings from asset sales, cannot exceed 10% of the Federal Government’s actual revenue for the preceding three years.
Compared to the CBN Act of 2007’s 5% of revenue from the prior year, this is a 100% increase. It is also less than the 15% that the Ninth Senate had previously suggested.
Additionally, the modification increased the time frame for borrowing from the CBN by the Federal Government from just the previous year to the preceding three years.
Interest rates
According to the amended bill, interest rates for short-term advances to make up for shortfalls in budgetary revenue must be decided by the CBN in consultation with the Coordinating Committee for Monetary and Fiscal Policies.
The average Monetary Policy Rate (MPR) for the previous 12 months must be less than the interest rate.
The bill said as follows: “The Bank may make temporary advances to the Federal Government in respect of a temporary deficiency of budget revenue, subject to the provisions of section 34(d) of this Act. The rates of interest will be at the Bank’s discretion and will be determined in consultation with the Coordinating Committee for Monetary and Fiscal Policies. In no case will the rate be lower than the average MPR for the previous 12 months.”
“The aggregate amount of outstanding advances shall not surpass ten percent of the Federal Government’s actual revenue for the preceding three years, exclusive of proceeds from asset sales, at any point in time.”
Terms of repayment
According to the amended bill, advances must be paid back within a year of their grant date. The interest rate rises by 10% if the loan is not paid back within this time frame.
Moreover, until outstanding sums are completely repaid, no future advances will be granted. Crucially, repayments are not permitted in the form of promissory notes or any other bank-underwritten instruments.
The document stated: “All advances made pursuant to this clause shall be repaid-
“(a) as soon as possible and shall in any event be repayable at the end of twelve months after the advance date and if such advances remain unpaid at the end of the year the interest rate payable shall increase by ten percent, the power of the Bank to grant such further advances in any subsequent year shall not be exercisable, unless the outstanding advances have been repaid and any such outstanding amount shall be held against the proceed of the sale of government asset; and
“(b) in such form as the Bank may determine; provided that no repayment shall take the form of a promissory note or such other promise to pay at a future date or securitisation by way of issuance of treasury bills, bonds, certificates or other forms of security which is required to be underwritten by the Bank.”
Additional Details
The Central Bank of Nigeria (CBN) may provide short-term or emergency finance to the government under the Ways and Means Advances clause in order to fill cash flow gaps. The securitization of N22.7 trillion, which was previously advanced to the Federal Government by the CBN for N23.3 trillion, was authorised by both chambers of the Ninth National Assembly in early May 2023.
After then, the obligation Management Office (DMO) received this obligation, which now has a 40-year term, a 3-year moratorium, and an interest rate of 9%. Similarly, the remaining N7.3 trillion under Ways and Means was cleared for securitization by the Senate of the 10th Assembly.
The Federal Government of Nigeria reportedly got an additional N3.8 trillion in new Ways and Means Borrowing in the final six months of 2023, according to exclusive reports published by the News Chronicles. This news is significant because it contradicts previous remarks made by Wale Edun, the Coordinating Minister of the Economy and Minister of Finance, who claimed that President Bola Tinubu’s administration had not taken out a loan from the CBN.
The Federal Government set aside almost N4.83 trillion from the revenues of Nigerian Treasury Bills (NTBs) and Bonds issued in 2024 to settle the outstanding Ways and Means Advances. In keeping with the government’s attempts to manage its financial responsibilities and stabilise the economy, this allocation was made with the intention of paying off the debt owing to the CBN.
