Discordant views from the Finance Minister, Kemi
Adeosun, and Central Bank of Nigeria (CBN) governor, Godwin Emefiele, on key
fiscal and monetary policy decisions this week, highlight cracks in President
Muhammadu Buhari’s economic direction, financial experts and economists said
Between Monday and Tuesday, the two top members of
the government’s economic team, canvassed opposing views on the best way to
grow the country’s economy out of recession.
On Monday, Mrs. Adeosun, apparently voicing the
concern of manufacturers, urged the CBN to consider cutting the current 14 per
cent benchmark interest rate by banks, to support government stimulus plan to
borrow cheap funds locally, to bail out the economy.
Ahead of last Tuesday’s Monetary Policy Committee
(MPC) meeting, analysts had expected the CBN to heed the suggestion, to
stimulate borrowing from banks to finance productive activities to grow the
economy.
However, the unanimous decision of the MPC to keep
the prevailing rates unchanged betrayed the lack of consensus among members of
the government economic team on the best way to guide the economy out of
recession, experts said.
In its resolution, the MPC decided to retain the
monetary policy rate (MPR), which sets the lending rate for banks and
businesses at 14 per cent.
The committee also kept the cash reserve (CRR),
which specifies the minimum fraction of customers’ total deposits commercial
banks could hold as reserves either in cash or deposits with the CBN, at 22.5
per cent.
The CBN governor said the MPC’s decision to ignore
the Mrs. Adeosun’s proposal in favour of retaining the rates was informed by
the bank’s resolve to continue to tighten liquidity in the monetary policy to
limit the balance of risks currently weighing against one of its key
functions of stabilizing price.
“Both monetary and fiscal
authorities have the same intention to achieve growth. But, the direction
through which each wants to achieve it may differ, for as long as you still
achieve the growth,” Mr. Emefiele said.
He said expectations for
reducing interest rate, brings two possibilities – either to spur credits to
the private sector at lower rates, or to borrow at lower rates, as canvassed by
Mrs. Adeosun and analysts, to spend.
Contrary to these views, he
said the MPC believed similar decisions in the past to reduce the policy rate
and CRR hardly impacted credits to the private sector.
He said such credits went
to traders, instead of real sector development, and traders used them to demand
for foreign exchange allocations that were not properly deployed, triggering
further pressures on the FOREX market.
Despite requests to banks
for proposals for primary agricultural and new manufacturing projects and
others capable of spurring industrial capacity and manufacturing output, Mr.
Emefiele said what CBN has so far received have been proposals for refinancing
the liquidity of the banks.
“That is why the CBN has
been a little circumspect about releasing some of those liquidities as
expected,” he explained.
Although lowering interest
rate would make it possible for government to borrow at lower rates from local
financial institutions to stimulate spending and demand for goods and services,
the CBN governor argued, not taking action to boost industrial capacity and
manufacturing output, could see “too much money chasing too few goods.”
This outcome, he pointed
out, would inevitably worsen the spiraling inflationary trend in the economy,
currently at about 17.1 per cent.
“That’s why we are saying,
while the fiscal authorities are going ahead to spend, the MPC would keep the
rates where they are, to tighten liquidity, to encourage inflow of fresh
capital to the economy,” he said.
The Chief Executive of
Abuja-based Global Analytics Consulting, Tope Fasua, said the blame should go
to the Finance Minister.
“The Minister pre-empted
the MPC and put them in a tight corner,” Mr. Fasua said. The MPC acted to
assert their independence, to show they were not taking instructions from
anybody.”
Mr. Fasua said some
manufacturers asking for FOREX were in the habit of diverting the allocation
for them to import raw materials, to other businesses, and denying the people
the benefits of their services.
Odilim Enwegbara, a
development economist and analyst, said the CBN was wrong not to have reduced
the lending rate, particularly at this period of economic recession, blaming
the inability of the MPC to act in that direction on the interest Mr. Emefiele represents
at CBN.
“Mr. Adeosun is working for
the President, who is under pressure to grow the economy out of recession. But,
Mr. Emefiele is under pressure to protect the interest of the banks, which is
his primary constituency. The banks are comfortable if the status quo remains,”
Mr. Enwegbara argued.
He said Mr. Emefiele and
his team have always held the notion fiscal policy, rather than monetary policy
could solve the economic problem.
Rejecting that thesis, Mr.
Enwegbara said the CBN always believed foreign investors would be attracted by
a regime of higher interest rate to invest in the country, saying this was why
President Buhari must intervene and call the CBN governor to order.
“That the Minister of
Finance suggested before the MPC meeting there may be a lower interest rate and
the CBN ignored showed there is a huge crack in the wall of government economic
team,” Mr. Enwegbara said.
“Both the minister and CBN
governor supposed to work in harmony at this time. They should be comparing
notes all the time, so that when they speak, they do so in one voice and
language, without confusion.
“The CBN governor should be
complimenting what the Finance Minister is saying and vice versa, to grow the
economy. The confusion will bring confidence problems in the policy making by
government,” he said.
He criticized the policy
stance of the CBN on the issue, saying they were not working in the interest of
bringing the economy out of recession.
The analyst, however,
regretted there was little the president could do at the moment to correct the
conflict of interest situation without amending the provisions of the CBN Act
of 2007 to give more powers for him to hire and fire any CBN governor seen to
be working against the interest of the people.
“As part of the amendment,
government should consider creating the Nigerian banking regulatory commission
to remove the banking sector monitoring, regulation and supervision functions
from the CBN and ensure nobody comes directly from the banking sector and be
appointed CBN governor.
“With such an independent
body, it would add that unless a person had been out of the banking industry
for at least five years as a former banker, he should not be qualified to be
appointed CBN governor, to create some distance between the CBN and the commercial
banks interest.” Mr. Enwegbara argued.
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