The Central Bank of Nigeria (CBN) has justified its constant funding of operations of the Federal Government.
This was following the impact of COVID-19 Pandemic on the nation’s economy.
Governor of the Central Bank, Mr. Godwin Emefiele, while dismissing criticism that more money printing could destabilize Africa’s largest economy, said Nigeria’s Central bank would be irresponsible not to finance the federal government when revenues drop.
While calling out the New York based credit rating firm, Fitch on Tuesday during the 277th Monetary Policy Committee (MPC) meeting, Emefiele said with the impact of the coronavirus pandemic on the global economy, most Central Banks came to the rescue of their government and that CBN was not an exception.
He disclosed that CBN has spent over ₦8.8 trillion to support the economy since the advent of COVID-19.
Fitch Ratings had in the past said that the sustained use of direct monetary financing by the CBN to finance the Federal Government, could raise risks to macroeconomic stability.
“The Federal Government of Nigeria’s repeated recourse to its Ways and Means facility (WMF) with the Central Bank highlights weaknesses in public finance management.
The FGN directly borrowed 1.9percent of GDP from the CBN to fund its fiscal deficit in 2020, ratings estimated by Fitch at 3.6percent of GDP.
“We estimate that the balance of the government’s WMF with the CBN was around NGN9.8 trillion (6.7 percent of GDP) at end-2019, up from NGN5.4 trillion (4.2 percent of GDP) at end-2018.
“The CBN’s guidelines limit the amount available to the government under its WMF to 5percent of the previous year’s fiscal revenues. However, the FGN’s new borrowing from the CBN has repeatedly exceeded that limit in recent years, and reached around 80 percent of the FGN’s 2019 revenues in 2020.”
In response, Emefiele said, “It is important for me to present it this way. It is unfair and I will say very unfortunate that Fitch which is known to be a first-class company and a first-class rating agency will hold such views on what we are doing and therefore pass judgment regarding the size of credit that the central bank has granted to the Federal Government of Nigeria.
“Let it be known first and foremost, that the Central Bank of Nigeria is a banker to the government. Second, let it be known that the Central Bank of Nigeria is a lender of last resort not just to the government but even to our banks when they run into short term liquidity problems” Emefiele said.