The Central Bank of Nigeria, CBN, has expressed concerns that fuel subsidy removal, rising import bills, and increased external debt servicing could negatively impact the country’s external reserves by 2024/2025.
This warning came as part of the CBN’s Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for the upcoming fiscal years.
Despite these risks, the CBN remains optimistic about Nigeria’s overall economic growth. It attributes this positive outlook to continued support in agriculture and oil sectors, foreign exchange market reforms, and the implementation of the Finance Act 2023 and the 2022-2025 Medium-Term National Development Plan.
The CBN emphasized that favorable global oil prices, improved domestic crude production, and gains from capital flows and remittances could bolster external reserves. However, it cautioned that downside risks, such as rising debt obligations and potential capital outflows due to global monetary tightening, could hinder growth in reserves.
On Nigeria’s output growth, the CBN projects continued positive performance but warned that inflationary pressures, rising energy costs, and ongoing security challenges could threaten the growth trajectory in the short-to-medium term.
The financial sector is expected to remain resilient due to CBN’s efforts to monitor risks and vulnerabilities within the system, ensuring continued economic stability through 2024/2025.
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In addition, CBN also announced it will sustain the Ways and Means Advances to the federal government at a 5% limit for the fiscal years 2024-2025, despite a recent National Assembly bill raising the borrowing cap to 10%.
This decision was also detailed in the CBN’s Monetary, Credit, Foreign Trade, and Exchange Policy Guidelines aligning with the country’s Medium-Term Fiscal Framework. The CBN emphasized that the 5% limit, based on the previous year’s collected revenue, will remain in place to support macroeconomic stability and address fiscal shocks. These advances, designed to bridge temporary budget shortfalls, must be repaid by the end of the year.
The apex bank noted that advances would now be calculated after factoring in the sub-accounts of various Ministries, Departments, and Agencies linked to the Consolidated Revenue Fund. This banking arrangement will persist through the 2024/2025 fiscal years, ensuring proper management of the Federal Government’s consolidated cash position.
The CBN’s Ways and Means Advances offer short-term financing to the government during budgetary deficits, subject to the limits imposed by Section 38 of the CBN Act, 2007.
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