FG borrowings drive money supply up 51% despite CBN tightening measures

In spite of the efforts of the Central Bank of Nigeria (CBN) to control the money supply through its tightening measures, the latest report from the apex bank shows that Nigeria’s Broad Money Supply (M2) soared by 51 per cent year-on-year (YoY) to reach ₦108.96 trillion in November 2024.

The surge, according to the CBN, was fueled by increasing domestic borrowings by the Federal Government.

Broad money supply, also known as M2, is a measure of the total amount of money in circulation in an economy, including both cash and non-cash components.

According to the CBN’s Money and Credit Statistics released recently, this increase represents a sharp rise from the ₦72.03 trillion recorded in the same period of 2023.

It said while M2 witnessed sustained growth over six consecutive months from April 2024, the trend briefly reversed in October 2024, declining by 1.5 per cent month-on-month (MoM) to ₦107.7 trillion from ₦109.4 trillion in September. However, the supply rebounded by 1.2 per cent in November, reaching ₦108.96 trillion.

READ ALSO:FG borrowings pushes money supply to N108.96tn – CBN

The report said the YoY surge in Broad Money Supply was driven by positive movements in its core components, highlighting a broader liquidity expansion across various financial instruments, made up of quasi-money, which includes savings deposits, time deposits, and other near-money assets, which grew marginally by 1.96 per cent YoY, reaching ₦72.7 trillion in November 2024 from ₦71.3 trillion in November 2023; demand deposits, which increased significantly by 34.4 per cent YoY, climbing to ₦31.6 trillion from ₦23.2 trillion during the same period; and currency outside banks, which rose sharply by 50.9 per cent YoY, bringing this figure to ₦4.65 trillion in November 2024 from ₦3.08 trillion in November 2023.

The CBN data also revealed a notable increase in credit allocation across the government and the private sector. According to the report, credit to the government rose by a staggering 54 per cent YoY, reaching ₦39.6 trillion in November 2024 compared to ₦25.7 trillion in November 2023, while credit to the private sector in the form of loans and advances increased by 27 per cent YoY, amounting to ₦75.96 trillion from ₦59.7 trillion in November 2023.

It said this combined growth in domestic credit resulted in a massive 91 per cent YoY rise in net domestic credit, which soared to ₦115.6 trillion in November 2024 from ₦60.5 trillion in the corresponding period of 2023.

Experts believe that while rising liquidity supports economic activities, there is a need for balanced fiscal and monetary policies to sustain economic growth without causing higher inflation. Throughout 2024, the CBN consistently raised the interest rate, hitting 27.50 per cent in its efforts to reduce the money supply and check rising inflation, which hit 34.60 per cent in November 2024.