Ways and Means: Navigating the Economic Challenges of Debt

By Sylvanus Okwechime

Last year, the Senate’s decision to elevate the federal government’s borrowing limit via Ways and Means from five percent to 15 percent carried significant weight. Lawmakers emphasized that this step aimed to enable the Federal Government to meet its present and future obligations, aligning with the National Assembly’s approval and advances from the Central Bank of Nigeria.

According to the CBN Act, the Ways and Means should not surpass five percent of the previous year’s revenue. Section 38(2) & (3) of the CBN Act explicitly states this limitation. However, in a leading debate spearheaded by Senator Ibrahim Gobir representing Sokoto East, who also served as the Senate Leader, the Senate’s support for the amendment to the Central Bank of Nigeria Act (Amendment) BILL, 2023 (SB. 1125) was sought.

The Senator, representing Sokoto East emphasized the significance of this amendment in allowing the Federal Government to embark on crucial projects vital for bolstering and revitalizing the economy. He said,  “Mr President, my respected colleagues, permit me to lead the debate on this Bill which seeks to amend the Central Bank of Nigeria (CBN) Act to increase the total CBN advances to the Federal Government from five per cent to a maximum of 15 per cent (15%).”

In his closing statement, he urged the fellow lawmakers to support the passage of the bill, to give way to a thriving economy. 

“The Bill was read for the first time in this Chamber on Wednesday, May 24, 2023. This amendment is very consequential and it needs the support of us all. This is to enable the Federal Government to embark on very important projects that will inflate and rejig the economy. I, therefore, urge you all to support the passage of this bill.”

The subsequent approval by the Senate permitted restructuring the N22.7 trillion loan extended to the Federal Government under the Ways and Means provision.

The term “ways and means” finds its roots in the Parliament of England, signifying the provision of revenue to meet national expenditure requirements and implement economic policy objectives.

In the United States, the Committee on Ways and Means holds a pivotal role as the chief tax-writing committee in the House of Representatives. Its jurisdiction extends from the U.S. Constitution’s Article I, Section VII, stating that “All Bills for raising Revenue shall originate in the House of Representatives.”

Established initially as a select committee in 1789, the Committee on Ways and Means evolved over time, exercising jurisdiction over revenue-related matters, tariffs, trade agreements, and the U.S. bonded debt. Noteworthy figures in American politics have emerged from this committee, including Presidents, Vice Presidents, Speakers of the House of Representatives, and Supreme Court Justices.

Drawing parallels from established democracies is vital to dismiss the notion that Ways and Means inherently equals indebting a nation. The essence of Way and Means extends beyond just amassing debt.

Questions have arisen regarding the considerable debt accumulated by the federal government, especially during the past administration, using Ways and Means between 2016 and 2023. As of June last year, this figure surpassed N20 trillion, breaching the five percent ceiling prescribed by Section 38 of the CBN Act.

However, crucial questions revolve around the purpose behind borrowing via Ways and Means and the utilization of these funds. It’s imperative to note that this was not solely a Nigerian phenomenon during that period. Even the United States, considered a beacon of democracy, faced similar challenges during the same timeframe.

The Peter G. Peterson Foundation, an organization established by a former Secretary of Commerce, highlighted that when government spending surpasses revenues, borrowing becomes inevitable. Structural factors such as an aging population, rising healthcare costs, and an insufficient tax system exacerbate deficits, leading to increased national debts.

“America’s growing debt is the result of simple math: each year, there is a mismatch between spending and revenues. When the federal government spends more than it takes in, we have to borrow money to cover that annual deficit. And each year’s deficit adds to our growing national debt. Historically, our largest deficits were caused by increased spending around national emergencies like major wars or the Great Depression. Today, our deficits are caused mainly by predictable structural factors: our aging baby-boom generation, rising healthcare costs, and a tax system that does not bring in enough money to pay for what the government has promised its citizens. The coronavirus crisis has accelerated an already unsustainable fiscal trajectory, both because of its devastating effect on the economy and the necessary legislative response. Moving forward, it will be critical for America’s leaders to address our rising debt, and its structural factors.”

Currently, the American debt stands at $34.09 trillion, amounting to $101,246 per American. In Nigeria, the total Way and Means debt profile reached N22.7 trillion, which the former President managed to securitize before leaving office. This move, extending the loans over 40 years and reducing their value to N4.3 trillion, was considered necessary to sustain governmental operations.

Disputes arose as Jim Obazee contested the approval granted by the Ninth Assembly to securitize the loans, citing a contravention of Section 38 of the CBN Act, 2007. However, not all voices echo Obazee’s sentiments. Kingsley Moghalu, a former Deputy Governor of the CBN, cautioned that the disclosure of the investigator’s activities might undermine foreign investor confidence in Nigeria’s economy.

Contrary to the negative narrative surrounding Ways and Means, economic expert, Mr. Johnson Chukwu, CEO of Cowry Asset Management, described Ways and Means as interim funds lent by the CBN to the Federal Government, supporting expenditures until revenue accrual within the same year. He said, “Ways and Means is a way in which the Federal Government raises funds, by borrowing from the CBN. Such is done either through bonds or Treasury bills.”

Consequently, a review of the analysis of the approved Ways and Means shows that redemption of treasury bills and FGN bonds was N13.5 trillion, while interest on the Way and Means was N4.2 trillion, both representing N17.7 trillion for domestic debt-service of these sovereign instruments.

While acknowledging that this approach led to inflation during the same period, the government, faced with recurrent and capital obligations, often resorted to the Way and Means tool. This short-term inflation might be considered the collateral for such a necessary option.

•Okwechime, a development economics expert, wrote in from Lagos.