Rising Govt Deficits Remain Threat To Credit Delivery, CBN Says In 2020/2021 Policy Guidelines

The Central Bank of Nigeria (CBN) says growth in consumer credit by DMBs, propelled by its policy to raise the Loan-to-Deposit Ratio (LDR), first from 60% and later 65% and Global Standing Instruction (GSI) clause, would improve credit delivery to households and MSMEs as well as moderate unemployment and sustain the growth trajectory.

According to its “Monetary, Credit, Foreign and Exchange Policy Guidelines for Fiscal Years 2020/2021,” published at the weekend, the apex bank however warned that these measures, commendable as they may seem, are threatened by headwinds.

One of such, the CBN noted, is the increased Federal Government deficits, which may narrow the “fiscal space and crowd-out private investment; underutilization in the labour market due to weakened aggregate demand; and a build-up in inflationary pressures resulting from the increase in Value Added Tax (VAT) and border protection.”

The guidelines project headline inflation of between 13.97% and 14.15% at the end of this year, above its single digit target, a situation it blamed on “supply shocks which may likely happen due to decline in economic activities, globally as a result of COVID-19 pandemic that started in China in Q4:2019; (and) demand shocks emanating from domestic and international lockdowns.”

Others include “food supply shocks associated with non-tariff Monetary, Credit, Foreign Trade and Exchange Guidelines for Fiscal Years 2020/2021 border protection; and effect of the implementation of the new budget and minimum wage.”
The apex bank expects Nigeria’s financial sector to remain resilient in 2020 due to the accommodative monetary policy stance, as well as continued efforts towards ensuring financial system stability and credit expansion policies.

The document also plans to retain Ways and Means Advances available to finance the Federal Government’s deficits in its budgetary operations to a maximum of 5% of previous year’s actual collected revenue.

Such advances, it added, “shall be liquidated as soon as possible, and shall in any event be repayable at the end of the year in which it was granted.”