Battle between Fiscal, monetary policy threaten economic recovery


The increasing policy difference between the fiscal and monetary authorities in the management of the economy since 2015 has become the main obstacle hindering the full recovery from the problems buffeting the country, which has suffered two recessions in the past six years of this administration.

Experts believe that the worsening economic fortunes of Nigerians is caused primarily by the defective and inflationary policies of the government, which made its management and control near impossible. Such policies impinge negatively on macroeconomic stability.

One of such policy conflicts militating economic recovery is the federal government’s excessive borrowings from the Central Bank of Nigeria, CBN, through the Ways and Means Advances may have become the single most adverse factor impeding the performance of the CBN, and worsening the economic crisis in the country.

This was disclosed in the Monetary Policy category of the CBN Frequently Asked Questions, FAQs, under the title, “Can government frustrate CBN policy”? It was stated that there are certain distortions in the Monetary policy base due to the over dependence of the government on the CBN on deficit financing.

In the document, MPC, lamented that the growing lending by the CBN to finance government deficit budget, though statutory, is directly undermining its ability to implement price stability measures to reverse the economic down turn in the country.

“Yes, when the federal government exceeds its revenue, the CBN finances government deficit through Ways and Means Advances subject to a certain limit.”

In the existing laws. One of such regulations or laws which the government has routinely disregarded, is the Fiscal Responsibility Act, which sets a limit to the level of borrowings by government.

Also, Section 38(I) of the CBN Act, 2007, states that the “Bank may offer temporary advances to the government to cover the deficiency of the budget revenue at such set rate of interest as the Bank may determine. The total amount shall not at any time exceed five percent of previous year’s actual revenue of government.”

The direct consequences of depending on the CBN to fund its deficits create distortions in macroeconomic instability because of excessive liquidity. Ways and Means is a loan by the CBN to finance government during temporary budget shortfalls subject to the limit imposed by law.

Fitch, a rating agency, had in January 2021, raised concern over government continued recourse to Ways and Means to fund its growing deficits. The agency said that the Bank financing of government could pose serious macroeconomic stability risks in the context of weak institutional safeguards that pressure the credibility of policy making and the ability of CBN to the control inflation.

It was this habit that forced Governor Godwin Obaseki of Edo state, to raise the alarm in April 2021, over the borrowing from the CBN to fund the Federation Account, exceeding the five percent limit, which is used to fund the Federal Account Allocation Committee, FAAC, shared monthly by the three tiers of government in the country.

According to him, government was borrowing from the CBN to fund the FAAC due to revenue shortfalls arising from the Covid pandemic, which took the economy into a second recession in three years, as oil price, the may stay of the economy, plunged.

The Ways and Means borrowings are mainly for budget support of the three tiers of government.Since 2015, most of the state government have been under intense fiscal pressures as revenue from the FAAC has continued to dwindle, putting in jeopardy all their development programmes, and even payment of salaries.

For instance, Kaduna state had to lay off workers as a result of spending about 93 percent of its monthly revenue of N3.6 billion on salaries alone, leaving only as little as N300 million for other programmes and services. This has also gingered state governments to take serious steps to boost in internally generated revenues. Already, the CBN has extended to gove