Nigeria’s central bank is printing money to keep the government afloat and alarms are ringing

For a while now, economists and finance types who follow the Central Bank of Nigeria (CBN) have been sounding a low intensity alarm about the CBN’s direct funding of the Nigerian government.

Between December 2013 and April 2017 for instance, the CBN’s “claims on the federal government” went from 678 billion naira to 6.5 trillion naira ($1.8 billion to $17.3 billion)—an almost 10-fold rise. These “claims” are made up of overdrafts, treasury bills, converted bonds and other such lending. For the most part, the issue has remained an obscure one that receives hardly any attention from local media.

But then, a couple of weeks ago, the CBN finally published the personal statements of the Monetary Policy Committee (MPC) members from the July meeting [PDF] and suddenly the alarm bells started ringing. The personal statement of Dr. Doyin Salami, a well-regarded member of the MPC noted for his straight talking, said the CBN was providing a “piggy-bank” service to the federal government. Specifically, he said [page 38]:

Perhaps the most challenging of the present characteristics of the economy in Nigeria is the adoption of a quantitative easing stance by the management of the Central Bank. Monetary data shows a sharp rise in the extent of CBN financing of the government deficit.

He quoted statistics that showed much of the rise in the CBN’s financing of the federal government have come since last December with its purchases of government bonds being the worst culprit with a 20-fold rise in 2017 alone. In effect, the CBN has been printing money to fund the government’s spending. The reason for this is, of course, clear—Nigeria’s government has not been able to recover in any meaningful way from the collapse in oil prices that has now entered its fourth year.