FG, states promise to steer clear of CBN amid budget squeeze

The Nigerian federal and state governments need to cut back spending to deal with a drop in revenues instead of depending on the central bank for financing, Finance Minister Zainab Ahmed said on Monday.

Ahmed denied claims by a state governor that the central bank printed money to make up a N50 billion ($122 million) shortfall on federal revenues earmarked for the 36 federal states in March.

“We will make sure that we don’t have to do that,” Ahmed said in an interview with the National Television Authority. “As a nation, the federal, state and local governments must review expenditure patterns. We are spending too much and we are not generating enough.”

Nigeria emerged from its second recession in four years in the fourth quarter, but revenues remained subdued as a fall in crude prices curbed the main source of income for Africa’s top oil producer. Ahmed said the government aims to triple its revenue ratio to 15 per cent of gross domestic product.

Bloomberg had reported in January this year that the Nigerian government has become dependent on central-bank borrowing and will struggle to wean itself off the copious money printing that has raised concerns about the health of Africa’s largest economy, according to market observers.

After revenue collapsed during the oil shock of 2015, Africa’s biggest crude producer turned to the central bank, borrowing about a third of its debt from the apex lender to cover a budget deficit that’s tripled during the same time. Those loans — cheap and easily available — were not clearly reflected in the fiscal accounts and raised alarm bells at the International Monetary Fund and World Bank.

Unlike the vast amount of money released by monetary authorities in the U.S. and Europe, central-bank financing in Nigeria is driven by low revenue and used mostly to pay a swelling bureaucracy and a rising debt bill.

The IMF and the World Bank have said the practice undermines confidence and hampers investment. Uncontrolled money printing by central banks led to bouts of hyperinflation across Africa in the 1980s and 1990s.