Nigeria’s Growing Fiscal Deficit, External Debt, Others Worries Monetary Policy Committee

***As Committee Reduces Monetary Policy Rate To 13.50 Percent

By CLEMENT NWOJI, Abuja

The Monetary Policy Committee (MPC) of Nigeria’s apex bank, Central Bank of Nigeria (CBN), has expressed concerns over the nation’s growing fiscal deficit, external debt and debt service.

Although, it commended the Federal Government of Nigeria for settling debts owed to oil marketers, which has considerably, helped in reducing the non-performing loans (NPLs) portfolio of the banking industry, the MPC urged the government expedite action in settling all outstanding contractor-related arrears so as to improve the NPLs position and stabilise the banking system.

Further, it urged the government to monitor closely the public procurement processes to ensure prudent management of scarce resources.

This is even as the MPC loosened the Monetary Policy Rate to 13.50 percent from 14 percent after barely two years while retaining all other indices.

These formed parts of the decisions arrived at in its two-day MPC meeting presided by the CBN Governor, Godwin Emefiele, who read read the communique. The meeting was held at the Corporate headquarters of the bank in Abuja between 25 – 26th, March, 2019.

He said: “On a more cautious note, the Committee expressed concern and sympathises with the fiscal authorities, over the growing fiscal deficit, external debt and debt service, and urged the need to closely monitor the public procurement process in order to improve efficiency in public resource management.

“On financial system stability, the MPC noted the improvements in key financial soundness indicators and commended the Federal Government for the settlement of debt owed to oil marketers, which has considerably, helped in reducing the non-performing loans (NPLs) portfolio of the banking industry.

“The Committee, therefore, urged the Government to expedite action in settling all outstanding contractor-related arrears so as to improve the NPLs position and stabilise the banking system.

“In its consideration of the best monetary policy option, the Committee noted the need for all agencies of Government to work hard, not only in consolidating the growth so far achieved, but also in ensuring that appropriate policies are put in place and implemented to create jobs on a mass scale and diversify the economy in a proper direction.

” In doing this, the policy options facing the MPC at this meeting is a decision between retention of the current stance of monetary policy or a slight loosening of the policy rate, backed by the substantial stability of the major macroeconomic indicators.

“The Committee felt that given the relative stability in the key macroeconomic variables, there is the need to signal a new direction that is pro-growth.”

Consequently, the Committee in the meeting attended by 11 of its members resolved to adjust the MPR by 50 basis points from 14.00 to 13.50 per cent; retain the asymmetric corridor of +200/-500 basis points around the MPR; retain the CRR at 22.5 per cent; and retain the Liquidity Ratio at 30 per cent.

The Committee noted with satisfaction the moderate improvement in oil prices and stable accretion to external reserves, which stood at US$45.2 billion as at March 21, 2019, a 6.73 per cent increase from US$42.35 billion at end-February 2019.

However, while it observed the relative volatility in oil prices and its impact on accretion to reserves which could easily undermine the stability observed in the foreign exchange market, the Committee, “urged the Federal Government to strengthen its current revenue mobilization efforts as well as explore additional sources of revenue in order to improve fiscal buffers.

Further, it urged the Federal Government to sustain its implementation of the Economic Recovery Growth Plan (ERGP), while ensuring that growth is all inclusive.”

Also, the Committee emphasised the need to concentrate effort on addressing the problem of weak power infrastructure, as well as support domestic manufacturing.

According to the Communique, “The Committee also called on all relevant institutions of the government to address the menace of smuggling and dumping of goods into Nigeria; and encouraged the Bank to continue to explore available scenarios to deal with the activities of economic and policy saboteurs, including those involved in dumping and smuggling, in a bid to accelerate domestic production of goods in Nigeria.

“The Committee urged for the speedy passage of the other aspects of the Petroleum Industry Bill (PIB) to fast track the development of the value chain in the sector and create employment. It also welcomes the passage of the National Minimum Wage Bill by the National Assembly and call for its speedy implementation in order to boost domestic aggregate demand.”