…Credit to government surges to record high of N39.61trn

The money supply in Nigeria, as measured by the broad monetary aggregate M3, saw a remarkable year-on-year growth of 51.3 percent in November 2024.

The increase occurred despite the federal government’s decision to halt the use of Ways and Means advances, a practice previously employed to finance budget deficits through borrowing from the Central Bank of Nigeria (CBN).

According to data from the CBN, the total money supply (M3) reached N108.96 trillion in November 2024, a significant jump of N36.9 trillion compared to the N71.02 trillion recorded in November 2023. On a monthly basis, M3 rose by 0.97 percent from N107.99 trillion in October 2024.

Olayemi Cardoso, governor of the CBN, highlighted deliberate policy changes, emphasising fiscal discipline and monetary stability. In his words, “Under my leadership, we have taken decisive steps to move away from these practices. We have ended years of fiscal deficits financed through CBN’s Ways and Means advances, reinforcing our commitment to price stability and promoting fiscal discipline.”

The Ways and Means facility, a short-term loan mechanism provided by the CBN, had been used extensively to address budget shortfalls. However, this approach was heavily criticised for its inflationary impact.

Governor Cardoso noted the challenges posed by this financing model in a speech in November 2023, noting that Ways and Means advances had ballooned to an unprecedented N22.7 trillion in 2023, equivalent to nearly 11 percent of Nigeria’s GDP.

He also pointed to quasi-fiscal interventions by the CBN, totalling over N10 trillion, which undermined market confidence and weakened the efficacy of monetary policy. “These actions shifted focus away from our primary responsibility—maintaining price stability. They compromised transparency by bypassing essential oversight mechanisms, which are vital for accountability. Moreover, they strained monetary stability, contributing to inflationary pressures and market distortions,” he explained.

Analysts have expressed concerns about the inflationary implications of an expanding money supply. Increased money in circulation often results in more funds chasing a finite supply of goods and services, thereby driving up prices. This dynamic erodes purchasing power and imposes a heavier financial burden on households.

Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting, linked the surge in money supply to expanded government revenue stemming from the persistent depreciation of the naira and better performance in the oil sector.

Credit to the government also experienced substantial growth, reaching a record high of N39.61 trillion in November 2024. This represents a 54.4 percent increase from N25.66 trillion in November 2023. On a monthly basis, government credit rose by 0.6 percent from N39.39 trillion in October 2024.

Notably, the Federal Government had doubled its borrowing limit from the CBN in August 2024, increasing the threshold from 5 percent to 10 percent amid ongoing economic challenges.

Currency in circulation (CIC) climbed to an unprecedented N4.87 trillion in November 2024, reflecting a 45.8 percent increase from the N3.34 trillion recorded in November 2023. On a month-to-month basis, CIC rose by 7.3 percent from N4.54 trillion in October 2024.

Similarly, money outside banks reached an all-time high of N4.65 trillion in November 2024, marking a 50.97 percent increase from N3.08 trillion in the same period of the previous year. On a monthly basis, this metric increased by 8.6 percent from N4.28 trillion in October 2024.

The private sector also witnessed notable credit growth. Bank credit to the private sector increased by 27.3 percent, amounting to N75.96 trillion in November 2024, up from N59.68 trillion in November 2023.

On a monthly basis, private sector credit rose by 2.6 percent from N74.07 trillion in October 2024. The credit expansion reflects the private sector’s increasing reliance on credit to sustain operations and drive economic activities amidst a challenging fiscal environment.