CBN Expands eNaira Features, Maintains 5% Cap on Government Short-Term Funding

The Central Bank of Nigeria (CBN) is expanding its strategy for the digital currency, eNaira, to strengthen financial transactions within the Nigerian government.

The CBN’s newly revealed Monetary, Credit, Foreign Trade, and Exchange Policy Guidelines for Fiscal Years 2024-2025 outline plans to integrate eNaira into government payment systems.

This initiative will enable Ministries, Departments, and Agencies (MDAs) to process payments to vendors and beneficiaries directly from their eNaira wallets.

The CBN’s strategy includes the forthcoming release of eNaira version 2.0, which is expected to enhance the currency’s functionality.

Key improvements will feature collaboration with federal and state governments and the introduction of offline capabilities and programmable money. These upgrades aim to solidify the eNaira’s role in both digital and traditional financial sectors.

Despite these advancements, the eNaira’s adoption has been low. As of March 2024, it constitutes just 0.36% of the total currency in circulation, showing limited uptake despite the CBN’s efforts to promote its use.

The CBN has previously waived transaction fees for eNaira transactions and established a minimum capital requirement for service providers to stimulate adoption. However, the International Monetary Fund (IMF) has critiqued the slow growth in eNaira wallet downloads, revealing the struggle in gaining user acceptance.

Alongside these developments, the CBN has reiterated its focus on maintaining the Ways and Means Advances to the federal government at a 5% threshold for the fiscal years 2024-2025.

This policy allows the CBN to provide short-term financing to cover budget deficits, capped at 5% of the previous year’s revenue. Advances must be repaid within the fiscal year to avoid long-term fiscal burdens.

The policy now includes provisions for calculating these advances by incorporating sub-accounts of MDAs linked to the Consolidated Revenue Fund, aligning with the Treasury Single Account (TSA) framework. This adjustment aims to provide a more accurate assessment of the federal government’s cash position.

Recent legislative actions have seen proposals to increase the Ways and Means threshold to 10%, a move that has raised concerns about potential inflationary impacts and economic stability.

Critics, including CBN Monetary Policy Committee member Murtala Sabo Sagagi, argue that such an increase could lead to excessive liquidity and exacerbate inflationary pressures.

In response to previous misuse and controversy surrounding the Ways and Means facility, the CBN has taken steps to address these issues. This includes restructuring outstanding loans and halting further advances until previous amounts are repaid.

Finance Minister Wale Edun has confirmed that the federal government has repaid N7.3 trillion in advances, a significant step in managing the country’s fiscal challenges.

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