Follow Us on Google
By Chinwendu Obienyi
To effectively rein in inflation, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has said government revenue must improve to complement monetary policy.
This was even as the MPC noted that fiscal pressure will be reduced if government follows through with its plan to remove fuel subsidy towards the second half of the year.
This was contained in the CBN’s Communique of the MPC meeting which held in January. Whilst making personal statements stating his concerns about inflation, Edward Lamek, a member of the MPC, said that the current inflation is not entirely driven by money, elevated liquidity levels could undoubtedly exacerbate it hence the need to deploy measures to bring it under control.
Lamek noted that the outlook for fiscal policy remains inclement while the envisaged deficit in 2023 is large and may be financed in part by the banking system.
“As at end November 2022, the banking system net claim on Government had grown by about 63.58 per cent relative to end-2021. Fiscal 2023 could see a more rapid growth in the aggregate unless financing conditions in the domestic economy tighten. Ultimately, government revenue must improve to complement monetary policy towards reining-in inflation.
Additionally, staff forecasts up to March 2023 suggest a slow-paced moderation in inflation. Further tightening of the policy stance should improve the pace by dampening consumer demand and exchange rate depreciation pressures. This partly explains why most EMDEs central banks are not relenting in tightening monetary policy. Also, I view a tight monetary policy stance in the domestic economy as a reasonable response to rising yields in the advanced economies.
Doing so would curtail the straining effect of tight financial conditions abroad on capital inflow”, he said.
Also expressing his concerns, another member of the MPC, Festus Adenikinju, stated that the fiscal side remained problematic.
Adenikinju noted that the 2023 FGN budget projects a total expenditure of N21.83 trillion, and a total revenue of N10.49 trillion, giving a budget deficit of N11.34 trillion while the non-oil revenue is expected to contribute N2.43 trillion, the oil sector is expected to contribute N2.23 trillion.
He said that the expected budget deficit will lead to an increase in the public debt and debt servicing that already took a significant share of government revenue.
“I hope the FGN will follow through with its plan to remove fuel subsidies towards the second half of the year. This will reduce the fiscal pressure on the government, and it will also stimulate massive investments in the petroleum downstream.
