CBN has ceased providing FG with Ways and Means. — Cardoso

According to Olayemi Cardoso, the governor of the Central Bank of Nigeria, the federal government is no longer receiving Ways and Means from the apex bank until the outstanding loans are settled.

This was revealed by Cardoso on Friday during the economic team’s meeting in Abuja with the Senate Committees on Finance, Appropriations, Banking, Insurance, and Other Financial Institutions.

Ways and Means refers to the funds that the CBN provides to the federal government as a loan in order to increase government spending while waiting for revenue to be generated.

It was one of the steps the central bank took to lessen the economic difficulties the nation is currently facing, according to the governor of the CBN.

To address the current economic situation and, more importantly, the free fall of the Naira and increase in food prices, the Senate called in the economic team, which included the governor of the CBN, Minister of Finance, Wale Edun; Minister of Budget and Economic Planning, Atiku Bagudu; and Minister of Agriculture, Abubakar Kyari.”

To control inflationary pressure, we at the CBN have responded with significant monetary policy tightening,” Cardoso stated.

The money supply is identified by empirical analysis as one of the elements causing the present inflationary pressure.

For example, a nine-month trend analysis of the money supply shows that M3 increased from N52.01 trillion in January 2023 to N68.25 trillion in November 2023, indicating an increase of N16.24 trillion, or 31.22 percent, during that time.

“Increase in Net Foreign Asset following the harmonisation of exchange rates and the N3.22tn ways and means advances were the major factors driving the increase in money supply.”

I applaud the Fiscal Authorities’ efforts to stop making Ways and Means advancements. Additionally, this complies with CBN Act of 2007 Section (38) which states that the Bank cannot continue to provide Ways and Means advances to the Federal Government until the outstanding balance as of December 31, 2023, is fully settled.

As mandated by law, the bank’s advances under ways and means may not exceed five percent of its revenue from the prior year.

The Central Bank of Nigeria’s quasi-fiscal measures worth over N10 trillion have also been stopped. These actions were taken in the name of development finance interventions, and they had previously helped to flood the market with excess Naira and drive prices up to the levels of inflation we are currently facing.

In order to attain price stability, Cardoso added, “The CBN’s adoption of the inflation-targeting framework involves clear communication and collaboration with fiscal authorities, potentially leading to lowered policy rates, stimulating investment, and creating job opportunities.”

According to him, the country’s economic situation was starting to improve as a result of their efforts.”It is anticipated that we will assess the situation and make additional decisions on these significant issues during our MPC meeting on February 26 and 27,” he stated.

“Distinguished Senators, The CBN’s inflation-targeting strategy, which aims to limit inflation to 21.4 percent in the medium term with help from increased agricultural productivity and lessening pressure on the world supply chain, is expected to reduce inflationary pressures in 2024.

Cardoso addressed the issues and stated, “Distinguished Senators, these measures will boost foreign exchange inflows, stabilise the exchange rate, and minimise its pass-through to domestic inflation.

They aim to ensure a more market-oriented mechanism for exchange rate determination.”In fact, they have already begun to show early signs of success, drawing a lot of interest from foreign portfolio investors who are starting to provide the economy with much-needed foreign exchange.”

For instance, the N1 trillion Nigeria Treasury Bill auction saw an oversubscription earlier this week, with upwards of $1 billion coming in over the last few days.”

Cardoso continued, “Our efforts to enhance the flow of US dollars into the Nigerian economy have a great deal of potential to reduce exchange rate volatility. But in order for these policies to last, our nation needs to moderate its demand for foreign exchange.

Regarding the Naira’s free fall in value in relation to the US dollar and other hard foreign currencies, Nigerians have been advised by the governor of the Central Bank of Nigeria to curtail their pursuit of dollars, as well as their consumption and usage of foreign goods.

He underlined that the CBN lacks a magic wand to quickly stabilise the naira in the absence of moderation in demands on USD.On the other hand, he told the committee that a recent set of actions implemented by the apex bank are paying off, bringing in roughly $1 billion for the economy.”

The value of the naira is continuously declining due to increased demand pressure on the Nigerian foreign exchange market,” he stated. This condition is a result of several factors, such as excessive liquidity, insufficient forex supply, speculative demand, and increased capital outflows.”

A comprehensive strategy to improve liquidity in the FX markets has been launched in response to exchange rate volatility.

This entails, among other things, bringing new operational procedures for BDCs and IMTOs, clearing outstanding FX obligations, adjusting the cap on remunerable standing deposit facilities, enforcing the Net Open Position limit, and opening market operations.

“Our measures to improve the supply of USD into the Nigerian economy have significant potential to reduce exchange rate volatility,” he continued.

But in order for these actions to last, our nation needs to moderate its demand for foreign exchange.It is also evident that, despite being the CBN’s formal mandate, efforts outside of the Bank would be required to stabilise the exchange rate.

It will also involve corporate and individual initiatives to lessen our recurrent reliance on the dollar for both personal and professional needs.The governor of the apex bank gave Nigerians assurances that the country’s inflation rate would drop to 21.4% by 2024.

“Distinguished Senators, with the CBN’s inflation-targeting policy, which aims to contain inflation to 21.4 percent in the medium term, helped by improved agricultural productivity and easing global supply chain pressures, inflationary pressures are expected to decline in 2024,” he stated.