By Tony Obiechina, Abuja
The Central Bank of Nigeria (CBN) on Friday expressed deep concerns over the nation’s rising public debt burden, calling on the government to tread cautiously.
The Apex Bank also urged the Fiscal Authorities to “strongly consider building buffers by not sharing all the proceeds from the Federation Account at the FAAC meetings to avert a macroeconomic downturn in the of an oil price shock”.
CBN Governor, Mr Godwin Emefiele made these pronouncements while reading the communique at the end of a two-day meeting of the Monetary Policy Committee (MPC) at the Bank’s head office in Abuja.
According to the Governor, the MPC “cautioned that public debt was rising faster than both domestic and external revenue, noting the need to tread cautiously in interpreting the debt to GDP ratio”.
“It urged Government to gradually reduce reliance on oil receipts and focus on revenue diversification through reforms of the tax system. The Committee also called on Government to rationalize fiscal expenditure towards reducing the current excessively high cost of governance.
“The MPC expressed concern about the rising inflation, which increased consecutively in the last 4 months as of December 2019 to 11.98 percent and higher than its target range of 6-9%.
“This rising price level is attributable to a combination of structural and supply-side factors, expansionary fiscal policy; and growth in money supply arising from rising liquidity surfeit in the industry due to changes in the Bank’s OMO policy.
“In furtherance of its primary mandate to maintain price and monetary stability and in view of the anticipated medium-term liquidity surfeit from maturing OMO bills held by local private and institutional investors, which would not be rolled over, the Committee considered it prudent to raise the CRR to curtail liquidity surfeit in the banking system.
“The Committee is confident that increasing the CRR at this time is fortuitous as it will help address monetary-induced inflation whilst retaining the benefits from the Bank’s LDR policy, which has been successful in significantly increasing credit to the private sector as well as pushing market interest rates downwards.
“The Committee further encouraged the Management of the Bank to be more vigorous in its drive to improve access to credit through its pursuit of the Loan-to-deposit ratio policy as doing this would help, not only in creating job opportunities but also help in boosting output growth and in moderating prices.
” It is noteworthy that Gross credit in the industry grew by N2 Trillion between May 2019 and December 2019; 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”.
Emefiele also pointed out that since the inflation rate shot up in December 2019 is still above the upper band of the 6-9 percent threshold, tightening may be necessary to tame the rising trend in inflation.
On fiscal operations, the Committee applauded the Government for the recent signing of the 2020 Finance Bill “which opens a new vista of opportunities in public financial management”.
