The Deputy Governor, Operations Directorate, Central Bank of Nigeria (CBN), Mr. Folashodun Shonubi, has advised the federal government to urgently embark on an aggressive expenditure rationalisation to significantly reduce recurrent expenditure, free resources to fund expansion, ramp up fiscal stimulus and enhance fiscal buffers.
The CBN deputy governor, who said this in his personal statement at the last Monetary Policy Committee meeting, stressed that that deficit financing by the monetary authority must be addressed.
According to him, the government must explore opportunities for financing by the banking sector.
“In the external sector, we must sustain our actions, including transparency, to further strengthen investor confidence. There has been a gradual return of investors after the sudden reversal in the last quarter of 2019.
“We continue to see significant progress with the measures taken in the banking sector,” he added.
According to him, a combination of the Loan-to-Deposit Ratio (LDR) based and de-risking measures by the Bank had led to the ramping up of credit into employment generation sectors, thereby enhancing prospect for improved growth.
He, however, advocated for a review of capital requirement of banks to further strengthen their resilience and boost their capacity to adequately play their role as engine of growth.
“As I have mentioned in my earlier statements, the fiscal authority need to rise up to the occasion and effectively support the effort of monetary policy to promote growth.
“Persistent shortfall in revenue and increasing recurrent expenditure, has made the fiscal space even tighter, while recent trends in the level of deficit and debt accumulation have reached a worrisome state,” he explained.
According to Shonubi, the dragging global growth and tepid domestic economic recovery, amidst recent uptick in inflation constitutes a conundrum for monetary policy this year.
He noted that slow global economic growth has the tendency to weaken demand for Nigeria’s crude oil and cause fiscal fragility, saying crawling recovery was certain to worsen unemployment and poverty. “Though current inflationary pressure is an expected outcome of current strategies to alter the structure of domestic production, rising prices must be tamed.
“The Bank must continue to take necessary actions to deliver on its primary mandate of maintaining monetary and price stability that is conducive for economic growth, even as benefits of recent measures manifest gradually.
“Developments in the global economy continued to be influenced by the dynamics of China-US trade dispute, changing vulnerabilities in global financial markets, and geo-political tensions, amidst global debt build up and generally sub-optimal inflation in developed economies.
“Low-inflation, especially among the major developed economies, further heightened the prospect for continued adoption of accommodative policy by central banks in 2020 to tackle slowing growth,” he said.
For the domestic economy, he pointed out that in the last quarter of 2019, the economy experienced persistent rise in general prices as headline inflation increased for the fourth consecutive month to 11.98 per cent in December 2019, from 11.85 per cent in November 2019. This was attributed to the rise in both food and core inflation.
Food inflation reached 14.67 per cent at end-December 2019, from 14.48 per cent in the previous month. Importantly, on a month-on-month basis, headline and food inflation trended downward over the last three months, highlighting a gradual dissipation of (food) inflationary pressure. Core inflation, at 9.33 per cent in December 2019, trended upward, on month-on-month basis. Similarly, imported food reached 16.04 per cent in December 2019 after five consecutive months increase.
Latest released data by the National Bureau of Statistics (NBS) puts output growth at 2.28 per cent in the third quarter of 2019, driven by improvement in the non-oil sector and recovery in the oil sector.
“The expansion rate, however, remained weak and fragile vis-à-vis the desired and potential growth. Sustained rise in manufacturing and non-manufacturing purchasing manager’s indices, also showed continuous improvement in industrial activities.
“Resilience of the banking system was preserved throughout 2019, as indicated by the continuous improvement in prudential measures.
“Industry Non-Performing Loan (NPLs) ratio was at 6.1 per cent in December 2019, compared with 11.7 per cent in December 2018, and represented a significant improvement in 2019.
“Similarly, industry liquidity ratio, at 45.6 per cent in December 2019, was well above the prudential requirement of 30.0 per cent.”