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Banks Derail CBN’s N1tr Battle to Boost Economy

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banks

Lenders prefer traders to manufacturers, farmers

MPC retains tight monetary measures

Highlights of MPC meeting

•Monetary Policy Rate (MPR) 14%
•Cash Reserve Ration (CRR) 22.5%
•Liquidity Ratio 30%
•Asymmentric Window +200 -500

ADVOCATES of lower interest rates lost their battle yesterday.

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) failed to bring down rates, but tightened measures because banks:

  • have refused to lend to the agriculture and manufacturing sectors, despite the injection of N1trillion into the economy;
  • are lending to traders who pump the cash into foreign exchange trading, thereby increasing the unusual pressure on the naira, which exchanged for N325 and N425 to the dollar in the official and parrallel markets yesterday; and
  • attempts to inject more cash without corresponding increase in industrial capacity will worsen inflation.

The MPC of the Central Bank of Nigeria (CBN) shocked pundits by retaining all the monetary policy instruments at their current levels.

Addressing journalists at the end of the MPC meeting in Abuja, CBN Governor Godwin Emefiele said “the Committee assessed the relevant risks and concluded that the economy continues to face elevated risks on both price and output fronts”.

Emefiele said: “Given its primary mandate and considering the limitations of its instruments with respect to output and conscious of the need to allow this and other measures, like the foreign exchange market reforms, to work through fully, the Committee decided to retain the MPR at 14.00 per cent; the  CRR at 22.5 per cent; the Liquidity Ratio at 30.00 per cent; and the Asymmetric Window at +200 and -500 basis points around the MPR.”

Defending the MPC’s decision, Emefiele said it decided to tighten measures because banks were not lending money to agriculture and manufacturing, but instead were funneling credit to traders who used the money to demand for foreign exchange.

Emefiele said: “There was a time when the MPC took a decision not only to reduce the monetary rate but also the cash reserve. These were intended to lower rates and encourage spending by the private sector. After we did that, because we did not see the impact on the private sector, we further reduced the CRR from 30.5% to 25%; N1 trillion was injected into the economy through the banks to loan this money but rather than loan this money those credits went to traders who used them to demand for foreign exchange, thereby putting pressure on the foreign exchange market.”

The CBN governor went on: “Thereafter, we reduced CRR to its current 22.5%, that is about N300billion to N500 billion but we said we were not going to allow the banks to have the cash until they send proposals to the CBN for primary agric projects, real manufacturing projects and other types of projects that will support industrial capacity and manufacturing output. I must confess that the proposals that we received were mainly for the purpose of refinancing the liquidity of the banks and thought that that was not what we wanted. That is the reason we have been circumspect about releasing some of those liquidity.”

Very few banks, he said, “have submitted proposals for agric and new manufacturing projects that we will be considering in due course.”

Emefiele explained that “if we lower interest rate, what that will do is make it possible for the fiscal authorities to borrow at a lower rate. If they borrow at a lower rate to stimulate the spending, yes it will stimulate the demand for goods. When you stimulate spending by proving cash or money without taking action to boost industrial capacity, what will happen is that there will be too much money chasing too few goods, which will worsen the current inflationary situation we are in right now.”

The option the apex bank wants to adopt “is that while the fiscal is going ahead to spend, what we want to do is to say, ‘maintain the rates where they are’, since we want to maintain a fairly tight situation and since the tightening, we have seen inflow of FX of above $1 billion between July and now.

“These were used to procure raw materials. This will lead to price of goods moderating and growth of industrial and manufacturing capacity. We want to match the demand so that it does not lead to further inflationary pressure,” Emefiele said.

On the efforts of both fiscal and monetary authorities to synchronise their actions, Emefiele said: “We are working together to achieve what we want to achieve so that we don’t hurt the economy.”

The CBN governor added that “the Committee acknowledged the weak macroeconomic performance and the challenges confronting the economy, but noted that the MPC had consistently called attention to the implications of the absence of robust fiscal policy to complement monetary policy in the past. The Committee also recognised that monetary policy had been substantially burdened since 2009 and had been stretched.”

Against this background, members, he said, “reemphasized the need to prioritise the use of monetary policy instruments in dealing essentially with stability issues around key prices (consumer prices and exchange rate) as prerequisites for growth”.

Emefiele said that “the MPC noted that stagflation is indeed a very difficult economic condition with no quick fixes: having been imposed by supply shocks as well as fiscal and current account (twin) deficits. Consequently, the policy framework must be reengineered urgently to provide a lever for reversing the negative growth trend. While the imperative for ensuring financial system stability remains, the MPC reiterated the fact that monetary policy alone cannot move the economy out of stagflation.”

Emefiele said: “The MPC considered the numerous analysis and calls for rates reduction but came to the conclusion that the greatest challenge to the economy today remains incomplete fiscal reforms which raise costs, risks and uncertainty”.

“The calls came mainly from the belief that reducing interest rates will spur credit growth, not only in the private sector but also by the public sector, which will help provide liquidity to stimulate consumption and investment spending.”

The Committee, the CBN boss added, “was of the view that in the past, the MPC had cut rates; but found that rather than deploy the available liquidity to provide credit to agriculture and manufacturing sectors, the rate cuts provided opportunities for lending to traders who deployed the same liquidity in putting pressure on the foreign exchange market which had limited supply, thus pushing up the exchange rate.”

On providing opportunity to the public sector to borrow at lower rates to boost consumption and investment spending, the Committee agreed that while it was expected to stimulate growth through aggressive spending, doing so without corresponding efforts to boost industrial output by taking actions to deepen foreign exchange supply for raw materials will not help reduce unemployment nor would it boost industrial capacities.

“The Committee was also of the view that consumer demand for goods, which will be boosted through increased spending, may indeed be chasing too few goods which may further exacerbate the already heightened inflationary conditions. The urgency of a monetary-fiscal policy retreat along with trade and budgetary policy,to design a comprehensive intervention mechanism is long overdue,” he said.

The CBN, Emefiele noted, “has since 2009 expanded its balance sheet to bail out the financial system and support growth initiatives in the economy”. ”While stimulating economic growth and creating a congenial investment climate always is and remains essentially the realm of fiscal policy; monetary policy in all cases only comes in to support sound fiscal policy. Nevertheless, the CBN has and shall continue to deploy its development finance interventions to complement the overall effort of fiscal policy towards reinvigorating the economy. The interest rate decisions of the CBN are, therefore, anchored on sound judgment, fundamentals and compelling arguments for such policy interventions.”

The Committee also feels that there was the need to continue to encourage the inflow of foreign capital into the economy by continuing to put in place incentives to gain the confidence of players in this segment of the foreign exchange market. Consequently, the Committee considers that loosening monetary policy now is not advisable as real interest rates are negative, pressure exists on the foreign exchange market while inflation is trending upwards.

The Committee noted the positive response of the deposit money banks (DMBs) to the CBN’s call for increased credit to the private sector between July and August. As the growth in the monetary aggregates spiked above their provisional benchmarks, headline inflation continued its upward trajectory in August 2016, and now close to twice the size of the upper limit of the policy reference band.

“Supply side factors, including energy and utility prices, transportation and input costs, have continued to add to consumer price pressures. Members emphasised that improved fiscal activities, especially, the active implementation of the 2016 budget, and payment of salaries by states and local governments, will go a long way in contributing to economic recovery. In the same direction, the Committee urged the fiscal authorities to consider tax incentives as a stimulus on both supply and demand sides of economic activities,” Emefiele said.

On the outlook for the future, the CBN governor stated that “the data available to the Committee and forecasts of key variables suggest that the outlook for inflation in the medium term appears benign. First, month-on-month inflation has since May 2016 turned the curve; second, harvests have started to kick-in for most agricultural produce and should contribute to dampening consumer prices in the months ahead; and third, the current stance of monetary policy is expected to continue to help lock-in expectations of inflation which, has started to improve with the gradual return of stability in the foreign exchange market.”

In this light, the MPC believes that as inflows improve, the naira exchange rate should further stabilise. Overall, the major pressure points remain the challenges in the oil sector (production and prices), output contraction, and other financial system vulnerabilities as well as foreign exchange shortage.

Reacting to the MPC ‘s decision, analysts have conflicting views on the development. Dr Ogho Okiti President/CEO of Time Economics Limited noted that “cutting the MPR could do more to erode the credibility of the CBN with regards to the conduct of monetary policy. Such action, in our opinion will help worsen the already growing negative real interest rate and could further discourage the return of foreign investors – something the CBN has worked so hard to avoid. Moreover, the pursuit of an expansionary monetary policy in order to support growth, in the face of rising inflation and currency depreciations could prove to be counter-productive, particularly in the absence of complementary fiscal policy reforms.”

Mr Basil Odilim Enwegbara, an Abuja development economist, aligned with the fiscal authorities by arguing that “a country deep in recession caused mostly by high cost of doing business with one of highest MPRs and CRR among peer economies, has its MPC members behaving as if the economic is in high growth mode,  calls for sober reflection. What it tells us is that the 2007 CBN Act forced on the country’s President is a great fraud that should be stopped. I strongly believe that we have come to the point in our monetary policy stance when the amendment of the CBN Act of 2007 is now urgent. The goal of the amendment is for the Commander-in-Chief of Nigeria’s economy, President Buhari who was elected by millions of Nigerians to better the lives and improve the overall economy should be the one to have the final say about the country’s MPR, CRR and forex policy.  Mr President should call members of MPC to a close door meeting and demand their immediate resignation. In the meantime he should appoint an acting team to be working directly with him until a new team is put in place.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Economy

Amaechi Inaugurates Seven-Man Panel to Probe Suspended NPA Boss, Hazida

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Hadiza Bala Usman - Investors King

The Minister of Transportation, Mr. Chibuike Rotimi Amaechi, Monday inaugurated a seven-man panel of inquiry to probe the suspended Managing Director of the Nigerian Ports Authority (NPA), Hajia Hazida Bala-Usman.

The panel is to examine and investigate the administrative policies and strategies adopted by the suspended Managing Director while at the helms and confirm compliance with extant laws and rules from 2016 till date.

The minister, during the inauguration of the committee in Abuja, noted that the terms of reference of the panel include examining and investigating issues leading to the termination of pilotage and other contracts of NPA and confirm compliance with the terms of the respective contracts, court rulings and presidential directives.

“To also examine and investigate compliance with the communication channel as obtained in the Public Service, examine and investigate the procurement of contracts from 2016 to date,” he said.

Amaechi urged the panel to come up with suggestions and advice that would strengthen the operations of NPA and forestall such occurrences in the future, and any other matter that may be necessary for the course of the assignment.

Members of the panel include Suleiman Auwalu, Director, Maritime Services and Chairman of the team; Ben Omogo, Director, Organisation Design and Development, Co-Chairman.

Others include Hussani Adamu, Director, Procurement; Blessing Azorbo, Director, Legal Services; Mercy Ilori, Director, Transport Planning Coordination; Muhly-deen Awwal, Director, Human Resources Management; and Gabriel Fan, Deputy Director, Legal Services, who serves as the secretary of the committee.

Also, three employees of Human Resources Management are to serve as secretariat staff of the committee.

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Senate Goes After Agencies That Failed To Remit Into Federation Account

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2018 budget

The Senate has disclosed that no fewer than 60 federal government agencies failed to remit over N3 trillion generated revenue into the Federation Account from 2014 to 2020.

The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, said that some of the affected parastatals have started crediting government coffers with the outstanding revenues they generated in the last six years.

The Senate Committee on Finance headed by Senator Olamilekan Adeola made the allegation in the course of investigating revenue remittances by MDAs between 2014-2020 and payment of one percent Stamp Duty on all contract awards by the MDAs within the same period.

Although the committee did not categorically mention the agencies involved but the media gathered that almost all the revenue-generating agencies of the government failed to remit generated funds into the coffers of the government.

The Minister of Finance, Mrs. Zainab Ahmed, Director-General of Budget Office, Mr. Ben Akabueze, Auditor General of the Federation, Mr. Idris Ahmed, and other heads of agencies appeared before the committee over the ongoing investigation into revenue remittances by MDAs between 2014 and 2020.

According to senator Adeola, calculations from the Fiscal Responsibility Commission revealed that about 60 Government Owned Enterprises (GOEs), may have about N3trillion of government revenue still unremitted in their coffers or already spent on frivolous expenditure contrary to the Constitution and Fiscal Responsibility Act, 2007.

He said: “The reconciliation done so far by the Office of Accountant General of the Federation is in excess of over a trillion naira going to like two, three trillion Naira or thereabouts and these monies are still hanging in the hands of these agencies and we have asked the office of Accountant General to get the money into the government coffers and we discovered that they are giving them a payment notice without necessarily following up this process.

“We have noticed that in the so-called 80 percent of operational surplus the agencies refer to, many of these agencies proved frivolous expenditure and they have taken advantage of the current system and refuse to remit this amount as at when due. We tried to audit the account of these agencies year in year out for the past five years and some of the revelations are scary. How do we explain that an agency of government that has a provision in the budget for Capital, Overhead, and Personel, in their audited account, they have gross revenue of N500 million and they are asking for N200 million?”.

He added that since the commencement of the investigations some agencies have complied with the committee’s directive with some of them paying back tens of millions of Naira with receipts to show from the Office of the Accountant General of the Federation.

“There is no gainsaying the fact that if these revenues are paid to the Consolidated Revenue Fund (CRF) for proper appropriation by the parliament during budget considerations, we are going to reduce dramatically the size of our deficit and hopefully, minimise our borrowing.

“We cannot continue to run government business as we used to do in this time when there are huge demands for the government to fund needed infrastructure and other socio-economic programs”.

Adeola stressed that the minister and other top officials were invited to get their full buy-in and also brief them on the revelations unearthed by the over four-week-long investigations with many agencies committing all manner of illegalities relating to the expenditure of government funds that should rightly be paid into the Consolidated Revenue Fund (CRF).

The minister, in her contribution, confirmed that in recent times a good number of agencies have been directed to pay back revenues collected on behalf of the federal government as required by the law.

Ahmed added that the executive arm of government is also scrutinising the application of the template of calculating and deducting operating surpluses by agencies of government to ensure that the right amount is paid to the government.

On his part, the DG, Budget Office, Akabueze clarified that the issue of operating surpluses does not apply to any government agencies that are fully funded by the government, stressing that all revenue generated by such agencies must be paid in full into the CRF as it is illegal to spend out of such money without appropriation by the National Assembly.

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COVID-19: CBN Has Disbursed N83B Loans to Healthcare Sector

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CACOVID

The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, yesterday, said the central bank had disbursed over N83.9 billion to pharmaceutical and healthcare practitioners in the country since the outbreak of the COVID-19 pandemic in the country.

Also, Lagos State Governor, Mr. Babajide Sanwo-Olu, has stressed the need for a slash in the cost of governance in the country, saying a lot more resources could be dedicated towards healthcare and critical infrastructure.

They both said this yesterday, at the premiere of ‘Unmasked’, a documentary on Nigeria’s response to the pandemic held in Lagos.

Emefiele, who was represented by the CBN’s Director of Corporate Communications, Osita Nwasinobi, explained: “Building a robust healthcare infrastructure was also vital from a security perspective, as some nations had imposed restrictions on the exports of vital medical drugs as well as the use of drug patents that could aid in containing the spread of the pandemic.

“As a result, we focused our interventions in the healthcare sector on three areas. Building the capacity of our healthcare institutions supporting the domestic manufacturing of drugs by businesses, and providing grants to researchers in the medical field, in order to encourage them to develop breakthrough innovations that would address health challenges faced by Nigerians.

“In this regard, we disbursed over N83.9 billion in loans to pharmaceutical companies and healthcare practitioners, which is supporting 26 pharmaceutical and 56 medical projects across the country. We were also able to mobilise key stakeholders in the Nigerian economy through the CACOVID alliance, which led to the provision of over N25 billion in relief materials to affected households, and the set-up of 39 isolation centres across the country. These measures helped to expand and strengthen the capacity of our healthcare institutions to respond to the COVID-19 pandemic.”

According to the CBN Governor, the banking sector regulator also initiated the Healthcare Sector Research and Development Intervention Grant Scheme, which was to aid research on solutions that could address diseases such as COVID-19, and other communicable/non-communicable diseases.

He said so far, five major healthcare-related research projects were being financed under the initiative.

Speaking further on the call to increase access to health insurance, Emefiele said: “One key aspect which we would have to address is improving access to healthcare for all Nigerians. A key factor that has impeded access to healthcare for Nigerians is the prevailing cost of healthcare services.

“According to a study by World Health Organisation (WHO), only four percent of Nigerians have access to health insurance. Besides food, healthcare expenses are a significant component of average Nigeria’s personal expenditure.

“Out of pocket expenses on healthcare amount to close to 76 percent of total healthcare expenditure. At such levels of health spending, individuals particularly those in rural communities may be denied access to healthcare services.

“Expanding the insurance net to capture the pool of Nigerians not covered by existing health insurance schemes, could help to reduce the high out of pocket expenses on healthcare services by Nigerians. It will also help to increase the pool of funds that could be invested in building our healthcare infrastructure and in improving the existing welfare package of our healthcare workers.”

“The private sector has a significant role to play in this regard given the decline in government revenues as occasioned by the drop in commodity prices. Leveraging innovative solutions that can provide insurance services at relatively cheap prices could significantly help to improve access to healthcare for a large proportion of Nigerians particularly those in our rural communities.”

According to Emefiele, the CBN remains committed to working with all stakeholders in improving access to finance and credit that would support the development of viable healthcare infrastructure in our country.

On his part, Sanwo-Olu said: “What are the lessons that we have learned with the Covid-19? Looking at all the things that Covid-19 has cost us, how are we preparing ourselves?

“The truth be told the structure of our governance system needs to change particularly the cost of governance. We need to speak up and ask ourselves are we ready to change.”

“When it gets to the election it is the same set of people that will come up and people don’t come out to vote and we end up having 20 percent out of 100 percent that will elect those that will govern. So, the change has to be about all of us. That is how the real change that will help us will come,” he added.

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