Fitch Rating Agency has warned Muhammadu Buhari led federal government to halt the constant borrowing from the Central Bank of Nigeria (CBN) to finance the economy to avoid what it called “far reaching economic consequences” to the country.
In a statement today, January 22, Fitch said that the constant running to the apex bank to get funds “could raise risks to macroeconomic stability.”
Fitch said it “views the Nigerian government’s fiscal revenue and expenditure projections for 2021 as broadly realistic, which should preclude further significant borrowing by the sovereign from the CBN facility this year.
“The government may nonetheless use the facility more extensively if the deficit proves wider than forecast or if external financing falls short of planned amounts.
“Monetary financing of the fiscal deficit raises challenges to monetary policy implementation, as tight management of domestic liquidity is a key tool under the CBN’s policy of prioritizing the stability of the Naira. It could also complicate official efforts to bring inflation back under control.”
It said that unlike the government, “we include this balance in our metrics for Nigeria’s government debt. Borrowing from the facility accounted for 30 per cent of the FGN’s debt at end-2019, on our estimates.”
The rating agency warned Nigeria to reduce its use of the facility in 2021 because of its weaknesses in public finance management and the current weak institutional safeguards, adding that normally, the limit for the use of the Ways and Means Financing facility by the government should be five per cent of the previous year’s fiscal revenues.
It said however that the recent borrowing from the CBN has repeatedly exceeded that limit in recent years, and reached around 80 per cent of the FGN’s 2019 revenues in 2020.
Already inflation rate has risen to above 15 per cent as prices of goods and services have hit the roof top of recent.
