The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) on Wednesday expressed concern over the increase in allocations to the three tiers of government, stating that there was a need for strong stabilisation programmes to freeze the growth in aggregate expenditure.
The CBN Governor, Godwin Emefiele, said the committee called on the Federation Account Allocation Committee to create savings needed to stabilise the economy against future oil price-related shocks.
He said, “The Monetary Policy Committee observed increasing monetisation of oil proceeds as evident in the growing FAAC distributions relative to the 2017 level of disbursement.
“The committee urged the government to initiate strong stabilisation programmes and to freeze the growth in its aggregate expenditure and FAAC distributions in order to create savings needed to stabilise the economy against future oil price-related shocks.”
the committee also called on the National Assembly to speedily pass the 2018 budget.
The MPC, at the end of its meeting, resolved that a quick passage of the 2018 budget would keep the fiscal policy on track and deliver the urgently needed reliefs in terms of employment and growth for the people.
The 2018 Appropriation Bill, which was submitted in October last year by President Muhammadu Buhari, has been a subject of disagreement between the Executive and the National Assembly.
Announcing the decision of the committee at the end of its two-day meeting held at the apex bank’s headquarters in Abuja, Emefiele said the committee also urged the Federal Government to offset its huge debts to contractors.
He stated that if the N2.7tn contractor debts were settled by the Federal Government, a sizable portion of the huge non-performing loans in the Deposit Money Banks would be addressed.
Emefiele said, “The committee notes with satisfaction the gradual implementation of the Economic Recovery and Growth Plan in an effort to stimulate economic recovery.
“The committee urges the quick passage of the 2018 Appropriation Bill by the National Assembly so as to keep the fiscal policy on track and deliver the urgently needed reliefs in terms of employment and growth for the citizenry.”
The CBN governor also disclosed that the committee agreed to leave the Monetary Policy Rate unchanged at 14 per cent.
He explained that nine members of the committee unanimously agreed to maintain the current monetary policy stance.
He said apart from the MPR, the committee also retained the Cash Reserves Ratio at 22.5 per cent and the Liquidity Ratio at 30 per cent; while the Asymmetric Window was left at +200 and -500 basis points around the MPR.
The governor noted that the decision to hold the rates had nothing to do with the fact that some of the members were new on the committee, adding that they were well qualified and experienced for the job.
Explaining the rationale behind the decision to retain the rates, Emefiele said the committee was of the view that while further tightening would strengthen the impact of the monetary policy on inflation, such a decision could potentially dampen the positive outlook for growth and financial stability.
On the argument for loosening the current monetary policy stance, Emefiele stated that the committee was of the view that while such an action would strengthen the outlook for growth, it might lead to a rise in consumer prices and put exchange rate pressure on the naira.
On the argument to hold the rates, the committee, according to him, believes that key macroeconomic variables have continued to evolve in a positive direction in line with the current stance of macroeconomic policy and should be allowed more time to fully manifest.
He said, “The decision to hold the rates has nothing to do with the fact that they (some members) are new. Members of the MPC are independent-minded people with no pre-conceived mission or decision.”
“Data is presented by the monetary policy department and based on that, they made up their minds as to the choice options they want to go for.”
Emefiele added that the committee observed with satisfaction the continued rise in the external reserves, but urged the CBN not to relent in building buffers against future price downturns.
He said the bank would use the strength of its reserves, which he put at $49.69bn, to support the development of the nation’s refineries by supporting investors in that sector.
He noted, “The Federal Government is encouraging private sector investors to come into the refineries and what we do expect is that when those private investors are coming into Nigeria to do business, if they are foreign, they will come with dollars and won’t need our dollars; but if they are local and would want to import equipment, of course, they will need our dollars.
“We have lots of dollars to allocate to them to bring in their equipment and I assure anyone who is interested in going into refinery business that if you have your licence, we will accord priority to you to import those equipment because we badly need them here.
“We all know that importation of petroleum products into the country constitutes a large portion of our imports, and at some point rising to about 25 per cent of our import volume; and we think that if we accelerate the process of investors going into refineries, it will further help to conserve our forex for the importation of goods we cannot produce in Nigeria.”
On the level of DMBs’ credit to the economy, the CBN governor said the committee was dissatisfied with the low level of funding by the banks.
He said a new guideline that would encourage the banks to lend to the economy was being planned and would be released soon by the CBN.
The governor added that the apex bank would continue to provide single digit interest rate to key sectors of the economy under its developmental programme.
He gave the sectors as Small and Medium Enterprises, agricultural and core manufacturing.
Emefiele added, “We are not very satisfied that credit growth has not been as good as we thought. For instance, between November or December last year and February (2018), the volume of credit practically stayed at N16tn, which we considered very low because we think that for us to really push for growth, then Deposit Money Banks must one way or the other be encouraged to grant credit to those who need credit.
“The details as to the kind of guidelines that will be unfolded by the central bank to the Deposit Money Banks to encourage them to increase credit to the private sector so as to catalyse growth to the economy will be made available in due course.
“However, the CBN will continue to adopt the unconventional monetary policy approach in line with our development finance objectives to accelerate to the weak, the needy and priority sectors of the economy at a single digit interest rate, with a view to ensuring that we play our own role to catalyse growth for the country.”