The central bank should play little or no role in quasi-fiscal operations
In its economic update for Nigeria released in the last quarter of 2019 with the theme, “Jumpstarting Inclusive Growth: Unlocking the Productive Potential of Nigeria’s People and Resource Endowment”, the World Bank had recommended that curbing the use of quasi-fiscal operations by the Central Bank of Nigeria (CBN) would both alleviate distortions in the allocation of credit and improve policy predictability. According to the bank, “the CBN has attempted to directly increase its flow of credit to targeted sectors through development finance operations, with the aim to overcome the shallowness of the commercial bank credit market. Many of these operations are agricultural development schemes intended to support small rural enterprises and smallholder farmers. Regardless of their merits as development policies, financing these interventions through the CBN rather than the federal budget reduces the transparency of fiscal policy and the effectiveness of monetary policy.”
There is no ambiguity that the Anchor Borrowers’ Programme (ABP) is one of such quasi-fiscal operations of the CBN which the global multilateral financial institution alluded to. Latching on its developmental functions, the CBN established the ABP, which was launched by President Muhammadu Buhari on 17th November 2015 with the objective of creating a linkage between anchor companies involved in the processing and smallholder farmers (SHFs) of the required key agricultural commodities. The thrust of the ABP is the provision of inputs in kind and cash (for farm labour) to smallholder farmers with a view to boosting the production of rice, maize, poultry, sorghum, cassava, tomatoes and cotton, among others. The idea is to stabilise input supply to agro-processors and address the country’s negative balance of payments on food. It is a loan to farmers without collateral and the benefitting farmers are given farm input and cash to cultivate their farms, including the experiment on rice.
According to the structure of the ABP, a farmer who wants to repay his loan can either do so with cash or give the central bank his /her produce of same value, after which officials of CBN’s Development Finance Department would sell and recover the loan. Over four years of existence, the CBN said the programme has supported more than 1.5 million farmers across the 36 states of Nigeria in cultivating 16 different commodities in over 1.4 million hectares of farmland. But in spite of the achievements, the ABP has been fraught with reports of non-repayment of loan, diversion of input, side-selling, and other issues. Some of the farmers see the loan as their share of the national cake. The programme to which the CBN had as at July 2019 committed about N171 billion is reportedly seen as another government bonanza with farmers in some parts of the country defaulting in loan repayment. One instance of such default was reported in Kebbi where the chairman of the state chapter of the Rice Farmers Association of Nigeria (RIFAN), Mohammed Augie said that of the 70,000 farmers that benefitted from the ABP loans in 2015, only about 200 farmers were able to repay their loans.
Although the apex bank has disputed the report, we want to borrow a familiar adage that there is no smoke without fire. The CBN should go beyond denying the reported default and move to insulate the programme against going the way of other government interventions that turned out to be seen as bonanza by the beneficiaries. Besides, there is an urgent need for the CBN to begin to, perhaps, review the programme in such a way that cases of non-repayment of loans and some other reported abuses are stamped out. The apex bank should also begin to consider the recommendation of the World Bank to play little or no role in quasi-fiscal operations.