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From Uche Usim, Abuja
The Central Bank of Nigeria (CBN), literally speaking, is racing against time to nurse the economy currently in the intensive care unit back to life. But the road to recovery is rough as the regulator has to conquer multidimensional local and global economic headwinds to succeed.
Naira is tumbling and inflation is spiking. Foreign reserves are depleted and export is weak.
The finance ecosystem is in disarray and investors are flocking to safer and calmer climes.
Nigeria’s greatest challenges, experts note, are insecurity and corruption. The two blights seem to fester, despite trillions of naira spent on reforms and fortifying Nigeria’s security architecture in recent years. Consequently, there has been a drastic reduction in food and crude oil production; the biggest drivers of inflation.
Slump in food production as terrorists torment many agrarian communities has led to stratospheric rise in food prices and widening the poverty scourge.
Again, insecurity in the Niger Delta region has robbed Nigeria the room to hit its OPEC’s production quota, starving the federal government of the needed foreign exchange to buoy the economy.
Other factors fuelling inflation are; skyrocketed transportation cost due to petrol subsidy removal, weakened naira accentuated by the currency float arrangement of the CBN that has destabilized the finance space and infrastructural decay. Also fingered are; a sovereign debt of N87.38 trillion, weak export and a profligate administrative structure in all the arms of government at national and sub-national levels.
The inflation numbers, especially headline inflation, have risen for 10 consecutive times this year according to the Statistician-General of the Federation, Semiu Adeniran.
He pegged the latest headline inflation (October) at 27.33 per cent. In September, headline inflation rate was 26.72 per cent.
Food inflation rose to 31.52 per cent from 30.64 per cent in September. Core inflation also grew to 22.58 per cent from 21.84 per cent the previous month.
Regardless of the gloomy picture, the CBN Governor, Dr Yemi Cardoso, sees bloomy days on the horizon.
While acknowledging that the economy is sailing in the tempest, he assured that the rough air would soon blow away as strategic monetary policy initiatives were being pooled to steady the ship.
According to Cardoso, the new CBN management remains determined to change the narrative about the Bank and plant it on a success path so it becomes more impactful in the lives of Nigerians by curtailing inflation.
He added that one major priority of his leadership is to focus mainly on the core mandate of price stability.
“At the end of our tenure, we want to look back and see that our policies have positively impacted people’s lives,” he told investors recently.
Corroborating Cardoso, CBN’s Spokesman, Dr. Isah Abudulmumin, said that the monetary policy tightening stance of the apex bank has paid off with Nigeria’s headline inflation rate, on a month-on-month basis, in October 2023, standing at 1.73 per cent, 0.37 per cent, which is lower than the rate recorded in September 2023.
In a recent chat with newsmen in Abuja on the latest figures from the National Bureau of Statistics (NBS), Abdulmumin expressed further optimism that the low rate of increase in the average price level in October compared to September 2023, was a pointer to the fact that the Bank’s monetary policy stance to tighten rates and its money market reforms were yielding the desired effect.
“Aggressive monetary tightening using various liquidity mechanisms including removing the cap on the Standing Deposit Facility (SDF) and Open Market Operations had raised Open Buy Back (OBB) rates from less than 1 per cent in August to their expected levels around the monetary policy rate today.
“In spite of 0.61 per cent increase in the headline inflation rate from 26.72 per cent in September 2023 to 27.33 per cent in October 2023, Isa remained upbeat that the CBN was headed in the desired direction in terms of achieving price stability”, he explained.
According to Abdulmumin, available statistics showed that the first indication of deceleration in prices was recorded in September and further reforms in the money market, which commenced in October, had accelerated easing in prices as indicated by the substantial drop in month-on-month changes recorded in October.
“Moderation in month-on-month changes in prices observed in the headline, food and core components of the consumer basket followed reforms in the money market and relative stability in the FX market,” he added.
Already, accolades are coming to the CBN for gradually clearing the inherited unhonoured FX obligations of over $10 billion.
Experts say the momentum should be sustained by ensuring sufficient FX is available in the system at a market determined rate. They have also called for a thorough monitoring system to ensure FX goes to where it is needed and not wasted.
To ensure Nigeria does not choke from the staggering sovereign debt, the Minister of Finance, Mr Wale Edun, has ruled out further borrowing to avoid boxing the country into a debt trap.
He told legislators last Friday that it was completely unacceptable for Nigeria to spend 98 per cent of its revenue on debt service when there are critical infrastructural challenges to address.
Tilewa Adebajo, the Chief Executive Officer of CFG Advisory, a financial consulting firm, spoke on Arise News at the weekend and said there were genuine concerns in several quarters as food inflation is above 30 per cent.
He knocked the Buhari administration for swelling Nigeria’s debt with additional N30 trillion loan through ways and means financing.
He said: “If you want to grow the economy, you can’t have inflation inching towards 30 per cent. We must tackle inflation to get out of stagflation.
“We’ve not sufficiently invested in our oil and gas sector. Crude oil production at 1.3mbd is low and not up to our OPEC quarter.
“The federal government cannot do it alone and we need to build the private sector. FG’s contribution to GDP is just about 8 per cent. Build the private sector and get the economy to perform better”, he said.
The Director General, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, told Daily Sun that the most urgent task of the CBN is restoring confidence in the foreign exchange market, which it has begun doing by gradually clearing the forex backlog.
Other areas he wants the CBN to focus on are; deepening the financial system; efficiency of the financial system; capital requirements for banks; ways and means financing of fiscal deficit; naira redesign policy; concentration risk in banking sector; stakeholder engagement; corporate governance and tenure and cost of funds in the banking system.
As regards sanitizing the foreign exchange market, Yusuf said: “There is a serious confidence crisis in the foreign exchange market fueling an unprecedented speculative onslaught on the naira.
“The economy is grappling with severe adverse effects of depreciating exchange rate, soaring energy costs, ravaging inflationary pressures, huge backlog of foreign exchange obligations that need to be cleared and debt service obligations that need to be redeemed.
“Sadly, these outcomes are manifesting at a time when the country’s foreign reserves have been substantially encumbered.
“There is an apparent deceleration in the pace of economic reforms as the outcomes are at variance with expectations. The social costs of the reforms were substantially higher than anticipated, resulting in push-backs from the civil society”, Dr Muda told Daily Sun.
In deepening the financial system, he said it was imperative to deepen the financial intermediation role of the deposit money banks, which is their primary role in an economy. “Banking system credit to the private sector in Nigeria, as at 2022, was a mere 20.6 per cent of the nation’s GDP, as sub-Saharan average of 28 per cent and global average of 145 per cent. Besides, small businesses which account for an estimated 50 per cent of the GDP, have access to just about one percent of the credit in the banking system. The implication is that the banking system is still largely disconnected from the investing community, especially the small businesses in the economy. Financing gap in the small business space has been estimated at over N600 billion”, he explained.
He also spoke about the tenure of funds in the country’s banking system, saying it is extremely short.
“Over 85 per cent of deposits in the banking system are less than one year tenure. This maturity structure of funds cannot support economic growth. What it means is that long term investment cannot be supported by our banking system.
“Doing so will result in serious mismatch of tenure which could pose a risk to the banks’ stability. In 2021, the banking industry recorded a negative asset -liability mismatch of N45.6 trillion, according to the NDIC. This is not healthy for the banking system and the economy.
“This is why there has been a dominance of development finance in the economy. Such intervention funds have vulnerabilities that could create challenges for the economy. There is a need to address the macroeconomic fundamentals to correct this maturity structure of funds in the banking system.
“Lending rate in the economy is very high and detrimental to investment and economic growth. SMEs pay as high as 30 per cent interest on loans. For non-bank financial institutions, the rates are even more atrocious. This is not conducive for investment growth and job creation. Bringing down the interest rate will require a mix of monetary and fiscal policies”, he said.
