•Laments Nation’s Bloating Public Debt, High Governance Cost
•CBN To Drag NPL Ratio Below 5%
The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC), Friday rose from its first regular meeting for the year 2020 with a warning about the nation’s rising debt and the need to urgently build buffers.
Public debt, members noted, “was rising faster than both domestic and external revenue, noting the need to tread cautiously in interpreting the debt to GDP ratio. The committee also noted the rising burden of debt services.”
One way of building buffers, according to a communiqué issued at the end of the two-day meeting, they noted, is for government to stop “sharing all the proceeds from the Federation Account at the monthly FAAC meetings.”
This, according to the communiqué signed by Godwin Emefiele, CBN governor and chairman of the MPC, will help the nation “avert a macroeconomic downturn, in the event of an oil price shock.”
While applauding the government’s recent “signing of the 2020 Finance Bill which opens a new vista of opportunities in public financial management, the MPC called for less “reliance on oil receipts and focus on revenue diversification through reforms of the tax system.”
It is important, the committee noted, for the government to rationalize fiscal expenditure towards reducing the current excessively high cost of governance.
The meeting voted to raise the Cash Reserve Requirement (CRR) by 500 basis points from 22.5% to 27.5%, but retained the benchmark Monetary Policy Rate at 13.5%; the asymmetric corridor of +200/-500 basis points around the MPR; and the Liquidity Ratio at 30%.
The committee expressed confidence that increasing the CRR at this time will help address monetary-induced inflation whilst retaining the benefits from the CBN’s Loan-Deposit Ratio policy, which has significantly increased credit to the private sector while pushing market interest rates downwards.
Members further encouraged the CBN management more vigorously drive access to credit through its pursuit of the LDR thereby helping in job creation, while boosting output growth and moderating prices.
They also noted the N2tr growth in gross between May and December 2019, and the fact that it was “channeled primarily to the employment-stimulating sectors such as agriculture and manufacturing, in addition to increased lending to the retail and SME segments, which is expected to help boost domestic output growth in the short to medium term.
“To retain the gains from credit expansion and current industry focus on lending, the committee advised the Bank to sustain its LDR Policy and in addition continue to deploy its DCRR policy which directs new funding for greenfield projects and expansion to critical sectors of the economy,” the committee stressed.
The MPC equally noted improvements and sustained resilience of the Nigerian banking system, as shown by the continued drop in the banking industry’s Non-Performing Loans (NPLs) ratio from 6.6% in October to 6.1% in December 2019.
“The committee noted that the improvement reflected the CBN’s) continued deployment of heterodox policies to ensure that NPLs fell below the prudential benchmark of 5%,” the communiqué added.