Nigeria is going through turbulent times economically — MPC member
By Kayode Tokede
A member of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has said the country’s economy is going through turbulent times as some indicators are moving in the right direction, while others are moving in the wrong direction.
Professor Festus Adenikinju a Professor of Economics, University of Ibadan, said despite growth in Gross Domestic Product (GDP) at 5.01 per cent in second quarter of 2021, the likes of inflation, interest rates are still major challenges to the nation’s economy.
Adenikinju in his personal statement at the end of September MPC said, “Inflation, though receding, is still at an unacceptably high level. Interest rates margin is narrowing, though still unacceptably wide.”
He explained that the apex bank has succeeded in expanding both aggregate credit in the economy, as well as directing single interest rate to MSMEs and households.
According to him, the exchange rate movement remains worrisome, stressing that demand pressure in the formal market remains exceedingly high.
He said, “The challenge is how to boost foreign exchange supply to the economy. Given the four major sources of expanding supply: oil exports, foreign capital flows, remittances and non-oil exports, foreign portfolio investments, while desirable, is however, very fungible.
“Oil exports are similarly very volatile. The long term interests of the country would be served by encouraging remittances and non-traditional exports. Hence, suggestions to nationalise remittances will be counterproductive to the economy in the long term. Nigerians should be encouraged to bring in their funds into the economy by removing any uncertainty around the ownership and management of such funds.
“The CBN should conduct study to better understand the working of the foreign exchange market in Nigeria, especially the microeconomic factors driving economic agents’ behaviour in the market.
“In the light of the above, I would like to make the following recommendations: First, given the limited options open to the Bank to expand foreign exchange supply in the near term, there is a need to carry out a comprehensive study of foreign exchange market operations in Nigeria with a view to determining the fundamental drivers, and relative sizes of the segments of the foreign exchange market in Nigeria.
“In addition, there must also be effective monitoring of the DMBs to close loopholes for shady practices, collusion, and round tripping. Continuous communication to market operators on the policy of the Bank and assurances that customers will continue to have access to their domiciliary accounts is particularly important to improve transparency and certainty.
“Furthermore, the Bank should engage with the Government and the NNPC to find out the reasons for the non-remittances of any foreign exchange from crude oil and gas exports for two consecutive months.”
He explained further that, “Given the fragile growth currently recorded in the economy, and the high poverty and unemployment rates,
“CBN must sustain its current intervention programmes to boost domestic supply and create jobs. The other initiatives of the Bank in areas like creative industry and reactivation of the Commodity Exchange are pivotal to increasing employment and reducing poverty, especially among the youths. In a similar vein, the Development Finance Department should prioritise credit support for exporters.
“Moreover, the implementation of the Petroleum Industry Act should help to drive investment into the petroleum sector. This has the effect of boosting the oil sector’s contributions to growth. Expanding oil reserves will provide a basis for OPEC to increase the quota allocated to the country.
“The INFRACORP idea proposed by the Banking Committee is a very brilliant initiative. It will provide alternative source of financing infrastructure development for the country. This will relieve pressure on government accounts.
“There is a need to expedite action on its practical implementation. Lastly, the insecurity issue must be urgently addressed. This is a major cause of food price inflation in the country, and the high-risk premium that foreign investors priced into their investment in the country.”
Deputy Governor, Financial System Stability, CBN, Aisha Ahmad disclosed that the banking sector remained sound and resilient.
According to her, “Capital adequacy stayed strong at 15.2 per cent, whilst increase in credit was sustained with a growth of N3trillion (15.63 per cent) year on year with increased credit being channeled to growth enhancing sectors.
“DMBs’ liquidity profile marginally improved, increasing from 41.3 per cent to 41.7 per cent, which is above the 30 per cent regulatory benchmark, whilst the Bank continued to use Cash Reserve Requirement balances to provide liquidity backstops to banks as the need arose.
“Non-performing loans ratio declined further to 5.4 per cent in July 2021 from 5.7 per cent in the previous month reflecting strong industry risk management practices.
“The Nigerian payment system also retained its operational resilience effectively accommodating increased volume and value of transactions as more customers migrate to digital banking channels.
“The CBN must, however, remain vigilant and proactively manage risks to financial system stability from global and domestic macroeconomic developments.”
