November 30, 2022

The desire to rein in inflation in the light of the global inflationary spiral, exacerbated by the Russian-Ukraine war, largely influenced the CBN’s decision to raise the MPR in its last Monetary Policy Committee’s Meeting in September. The move is still the subject of examination as to the impact of the measure in the absence of other supporting government’s inputs, especially from the Fiscal arm of government, writes, Group Business Editor, SIMEON EBULU 

t will be uncharitable to imagine that the Central Bank of Nigeria (CBN) did not think through before it jacked up the base interest rate, or the Monetary Policy Rate (MPR) to 15.5 per cent at its last Monetary Policy Committee (MPC) meeting in September. The rate had remained at 14.0 per cent prior to the latest increase. 

 Since the commencement of Nigeria’s third democratic experiment from 1999, no arm of government in the financial services sector has shown greater interest in taking measures to reposition the nation’s economy more than the CBN. I could be wrong, or may have exacerbated this, but I need to be convinced otherwise.

Professor Chukwuma Charles Soludo, the then CBN Governor under President Olusegun Obasanjo and now the helmsman in Anambra State, set out to do a wholesale banking sector consolidation in efforts to reposition the industry so as to be able to perform its role as the driver and loan base for financing the nation’s industrial and manufacturing sector.

At that time, many of the banks numbering over ninety, merely existed more in name than agents of growth. Soludo reduced the number to under 25 banks and for the first time, Nigerian banks popped up and got listed among leading global 500-1000 banks. The exercise was criticised in some quarters as expected, but Nigeria and the baking and financial services sector is better for it today. 

The era of Soludo’s successor, Sanusi Lamido Sanusi, was no less eventful. Sanusi, who served one term as CBN Governor before becoming the Emir of Kano, built on the system he inherited and revolutionised it through the wholesale introduction of several reforms, which today have been further refined, improved and expanded by the current CBN leadership under Godwin Emefiele. 

So in a sense we have seen and experienced a trend which typifies a building-block trajectory transiting from one regime to another. In all of these, there has been a synergy and collaboration from both the fiscal and monetary flank of the sitting governments. Call it a helping hand, collaborative efforts, or simply put, each segment performing its assigned roles or functions. This has been the practise until now. 

Over the last few years and even as we speak, there are questions and insinuations as to whether the bond, or collaboration that had been between the Monetary and Fiscal arms of government is still in force, and if so, people want to know why the nation’s economy is not able to record as much growth as is expected, at a time that the CBN has gone far and wide to intervene in virtually every sector of the economy! The apex bank’s proofs of financial intervention are noticeable virtually everywhere. Name it; in Agriculture, Aviation, Oil and Gas, manufacturing, the film and entertainment industry, as well as forex management.

Now, just a jerk from the Russian-Ukrainian debacle has completely jolted the foundation of the economy as it were, and has offered ready made excuses at the fiscal authority why the economy is performing so badly as though the situation is peculiar only to this country. 

The reverberation from the war and its effect on oil prices and food supply -(as Ukraine and part of Russia are reputed to represent the wheat basket of the world), have hedged Nigeria in,  while other oil producing countries are smiling to the banks with  multi-billion dollar proceeds coming from windfall  from rising oil prices, Nigeria is lamenting its orgy of oil theft, probably by those assigned to manage and keep it.

At a time that Saudi Arabia alone in the first few weeks of the Russian-Ukrainian conflagration raked in over $7billion, Nigeria, the sixth ranked global oil producer, was shamelessly announcing to the world that it could not meet its OPEC+ quota of 1.6 million barrels per day, in addition to the spurious announcement, that over 400,000 barrels of its daily oil production was being stolen by unknown thieves. Hear that! What a contradiction.

Read Also: CBN goes tough on inflation, recalcitrant debtors to save economy

Catching the thieves and stopping the theft are not CBN’s assigned duties, but sadly they impede the apex bank’s efforts to turn the fortunes of the economy around. Tax collection and tariffs are not CBN’s duties, neither is securing farmers from bandits attacks in CBN’s purview. Providing infrastructure and power are not Emefiele’s duties, either. These pitfalls are expected to  be addressed by other arms of government, not the CBN.

 There is therefore the urgent need for institutional collaboration among the various arms of government for the efforts of the CBN in growing the economy to be impactful and meaningful. To do otherwise and expect a sudden economic turnaround will amount to an exercise in futility..

One of the decisions the CBN took in its last MPC meeting was to raise the base interest rate by 150 basis points from 14 per cent to 15.0 per cent in anticipation that the measure will rein in inflation. Many other central banks around the world, including developed economies did the same.

Hiking interest rates has been an age long  book measure to cap, or reduce spiralling rising prices of commodities. But the certainty that the move will yield the desired results without the input of  other arms of government, most especially the fiscal authority, remains an unanswered  question. 

Going forward, government should look in the direction of ensuring that other parameters, outside the monetary space  needed to be in place for the CBN interventions to thrive, must be addressed.

 Firstly, the primary requirement for effective security architecture is key. Until the advent of the ongoing ravaging floods that have virtually wiped out most crops, including grains and rice, the rage of banditry unleashed on farmers across the land, had put in doubt the ability of farmers to be able to refund loans advanced to them by the CBN under its Anchor Borrowers Program (ABP). If farmers’ failure to honour their loans repayment obligations the CBN can be excused on account of natural disasters like flooding, the same cannot be said for insecurity.

It’s expected that the security apparatus of the nation should have been activated to address banditary and not left to fester to the extent that it has grown, and now hindering the investments and efforts of the CBN to make staple foods available to Nigerians. If food is not readily available in the quantum that meets demand, it will stoke inflation. 

The above is also true of manufactured consumer and household items. The CBN has been generous and strategic in its intervention in the productive segment of the economy, including  power and the energy sector.

However, the most often voiced concern why these interventions have not translated into fruition in terms increased products’ supplies and reduced prices, is that other exogenous factors have come into play to douse the impacts of these interventions.

Often times, the CBN targets critical sectors germain to boosting the nation’s economic lifeline  with a view to  sustaining its growth and development.

Notwithstanding the volume and frequency of these interventions and in whatever sectors, their overall impacts would remain low and a nullity to the extent that these interventions are not supported by other government programmes and policies. That is why experts have overtime been advocating for corresponding fiscal measures in support of the various CBN’s measures.

To assume that rate increase alone will address the current inflationary tendency without corresponding fiscal policies will not yield the desired result.

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