The Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, in this post Monetary Policy Committee meeting interview fielded questions from journalists on a wide range of issues, especially on efforts by the banking sector regulator to achieve price stability. Obinna Chima and James Emejo bring the excerpts:
You would have seen newspaper reports about Fitch’s statement concerning the CBN’s Ways and Means to the federal government, which according to them raises macro-stability and public finance challenges, thereby weakening the central bank’s balance sheet. Fitch also said the central bank’s government financing pre-dated the pandemic. What is your take about that?
I think it’s important for me to present it this way: It is unfair and I would say very unfortunate that Fitch which is known to be first class company and a first class rating agency would hold such views on what we are doing and therefore, pass judgment regarding the size of credit that the CBN had granted to the federal government of Nigeria. Let it be known, first and foremost that the CBN is banker to government. Second, let it be known that the CBN is the lender of last resort, not just to government but also to our banks, when they run into short term liquidity problems. And I go back – because Fitch said yes it predated COVID-19 – It is true. In 2015/2016, you would all recall that there was a global crisis which resulted in massive drop in the price of crude oil. Like you all know, unfortunately, Nigeria is a country that would celebrate when crude oil price is high, but will sneeze when the price of crude goes down. In this case, the price of crude went down and we sneezed because revenue came down. When revenue came down, the government became incapable of financing all its obligations. And if government cannot finance all its obligations, I think it would be irresponsible on the part of the CBN as a lender of last resort not to support the federal government. Now, COVID-19 started. Again, we not only had a global crisis but it’s a crisis of monumental proportion never seen in our lifetime. A health crisis that has rendered every economy, ‘very useless;’ a health crisis that had caught every global leader pants down without resolution. Today as we speak, even the vaccines that have been provided or researches to be workable, they are not 100 per cent efficacious. People have doubt about the efficacy – whether with the second variants in different countries, whether the vaccines will effective. Not talking about that fact that the health crisis resulted in terrible fatalities, same health crisis has dovetailed to global economic crisis where the price of crude came down in February/March 2020 to as low as $17 per barrel, whereby even our cost of production became even higher than our revenue. And then Fitch says that the CBN is lending to the federal government. Let me say that these crises are of a global dimension and as a result the CBN is not alone in providing support to the government, and I will give a few examples: Advanced and emerging market economies have implemented both conventional and unconventional monetary measures aimed at curtailing the spread of the virus and stimulating greater economic recovery. In the US for instance, over $7 trillion of funds is projected to have been spent in 2020 alone. The total balance sheet of the US Fed has increased from $4.1 trillion to $7.4 trillion over the past year as part of its asset purchase programme. A few more examples and I will relate them to the GDP. In the United Kingdom, there was a time the Chairman of the Bank of England came out and said the Bank of England will not be giving support to the governor and the following day he reversed himself because he saw the consequences of the statement that he made. Today, the Bank of England and the Treasury have granted support that is equal to about 56 per cent of its GDP to help stimulate the UK economy and this amounts to about $1.57 trillion. Like I said, in the US, 35 per cent of its GDP amounting to $7.4 trillion has already been extended. The new administration in the United States are already thinking about granting additional, just to give stimulus or what can be said to be free money to people who had been impacted by the pandemic. In the Euro area, 15 per cent of the GDP has been granted by the various central banks and treasuries to support and this amounts to about $2.3 trillion. India has done 15 per cent of its GDP to support the recovery and that is to the tune of about $400 billion. South Africa has provided close to 10 per cent of its GDP, which amounts to close to $26 billion to support recovery. And in Nigeria, just 4.5 per cent of GDP amounting to about $18 billion has been done. So, when Fitch, an institution as recognised and reputable as they are, comes out and makes such sweeping remarks passing judgment and supported by some newspapers unfortunately, all I can say is that this is very unfair because those statements are totally misplaced. Some of these support measures have been included outright purchase of government debts by central banks in order to improve the ability of fiscal authorities to fund recovery efforts. We have also seen in the case of the United States, like I said, asset programmes as part of the Fed efforts to stimulate the economy. So, the efforts of the CBN are not different, that’s the only thing I can say, from what is being witnessed in other climes all over the world as we all share the same objectives of considering both conventional and unconventional measures that would support faster economic recovery in the light of reduced revenue receipts being faced by these fiscal authorities.
What will be the focus of MPC this year?
Like you know, the core mandate of monetary policy is price and monetary stability as well as exchange rate stability. But given the stagflationary environment we find ourselves today, where inflation is accelerating very fast and output growth is decelerating and contracting, monetary policy said yes, we will continue our price and monetary stability mandate but that they must be conducive to growth because you need to see positive growth in an economy as well as inflation – they must come together. So we will be looking more at growth and what are some of the targeted policies we will be looking at. We said we will be looking aggressively at what we can do to put in place measures that will stimulate consumer spending and ultimately also lead to more facilities for manufacturing companies, to agricultural companies, so that these would help to create employment, stimulate manufacturing output and positively impact on our GDP. For instance, like I said on our Targeted Covid-19 Facility, we have already disbursed N192 billion to 426,016 beneficiaries, out of the N300 billion that was earmarked. That means there is still room and we are willing to do more of this. For the AGSMEIS facility, so far we have disbursed N206.960 billion to 27,946 beneficiaries and we are willing to do more. Of course, under our Anchor Borrowers’ Programme, we have cumulatively disbursed about N500 billion and we have close to three million small-holder farmers that have benefitted from our various initiatives under our Anchor Borrowers’ Programme, where we have 21 agricultural crops in the country, providing seeds, fertilizers and other implements to improve the yield of agricultural output in Nigeria, so that prices can be low. We have also done healthcare, where so far, N72 billion has been disbursed to 73 projects and we are willing to do more. Our initial target is N100 billion, but as we see more optimism from companies, I believe we would do more. We also set aside about N1 trillion to support some agricultural and manufacturing companies. All we can say is that manufacturing companies that want to expand their plants should take advantage of this low interest facility to expand their plants, grow their manufacturing output and create jobs for Nigerians. We have talked about what we are doing in mass metering, to ensure that all homes are properly metered so that people can enjoy electricity. We have also done for the creative industry where we predominantly have the youths, be it in music, theatre arts, fashion design, IT, we have done some work and we would do more.
We have seen several circulars from the CBN on diaspora remittances as well as plan to bar customers in the export business. Why the emphasis on Diaspora remittances and export sector support?
You all recall that Nigeria currently depending on the kind of priority it places has four sources through which we can raise revenue to support our obligations. One is the revenue from crude; secondly is support from our foreign investors, whether they are portfolio of direct investors; thirdly, diaspora remittances and fourthly, exports sector support. Before now, what we’ve seen was that we have always given a lot of prioritisation to price of crude oil. When crude price goes up, we jubilate, when it comes down we worry. And secondly, anytime there’s need for money we look at what is the direction of foreign direct investment and the rest of them; whereas, we pay less attention to diaspora remittances as well as export sector support. What we are saying is that going forward, we will give a lot more support to export sector financing at concessionary rates so that these people and companies can generate export proceeds that would come to fund our obligation in the investors and exporters’ window. That’s what we are saying. And that we are going to ensure that if you are an exporter, you must complete the NXP form. That is because if you want to import into Nigeria today, tangible items, you fill Form M and if you want to pay for intangible items, you fill Form A. By our regulation, I did not make that regulation, if you want to export, you must fill NXP. We will no longer tolerate any situation where people to want conduct export activities without filling NXPs. We have held several engagements with the Nigeria Customs, we have held several engagements with the shipping lines and they have committed that no exports will be done without completing NXPs. That is because, NXPs is the only way we can regulate the volume of export activities taking place in the country. Through NXPs, we will know those who have repatriated or those who have not repatriated their proceeds into the country. And we have been begging through moral suasion, telling those who have exported to repatriate their export proceeds. The CBN will not tolerate that you conduct an export activity and you keep dollars abroad. It is by law and mandatory that you must repatriate those proceeds to Nigeria. If you refuse to, the CBN has the powers by law to prevent you from conducting banking activities in the Nigerian banking industry and we will do so. We have the target of January 31, for everybody to comply. Because we cannot all be calling on the CBN for dollars to conduct import operations and at the same time, there is a law that says if you conduct an export activity, you must repatriate the dollar home for others who want to import to conduct their import activity. And once you choose to keep your dollars abroad, we will not allow that. Now, on diaspora remittance, since I became the Governor I have been hearing about the size of diaspora remittance. Some say it is $20 billion, in fact, at a point, some said it is $30 billion. Honestly, I have been looking for the $30 billion or $20 billion, and I have not seen it. But, this time, I have decided that I will focus on it, to see that inflow. You know what, I am not even expecting $20 billion, if we get up to $15 billion, it will help the Nigerian economy. Today, Pakistan generates an average of $2 billion monthly in Diaspora remittance and this has helped to reduce the impact of Covid-19 on their economy. We deserve it. If statistics shows that the size of Nigeria’s diaspora remittance is $20 billion, then Nigerians deserve to know how and when that amount is utilised and we would provide the records. That is why we are insisting that if you are a licensed International Money Transfer Operator (IMTO), the proceeds of remittance must come into the country as foreign currency through only our deposit money banks, not through mortgage institutions or fintechs. If you use any of those, we find it, we would ask the banks to close the accounts of those fintechs or those mortgage institutions. We would block your BVN and you would not be able to conduct banking business in Nigeria again. It is important that people understand this. We would not allow people to continue to game the system. We should not allow this to continue in Nigeria again.
The interest rate for CBN’s intervention facility which was reduced to five per cent up to March this year, the deadline will expand in few weeks. What is the plan of the CBN?
As long as we see that there’s a second wave even in Nigeria, and while we are trying to convince government not to adopt a wholesome lockdown because that is catastrophic on everybody and the economy, we would extend by 12 months again the interest rate of five per cent for CBN interventions. It will result in losses for us particularly if we see yields going up, but we think this should be CBN’s contribution to ensure that interest rates particularly for our interventions which are targeted to either households, SMEs, agriculture, health sector, pharmaceuticals – that will stimulate consumer spending or and increase manufacturing output that we need to support it. We will continue to do so.
The CBN released over N400 billion in special bills to the banks, can you shed more light about this policy?
From our CRR policy, we found out that a lot of money had been kept as CRR at the CBN and this was beginning to impact on the liquidity ratio of the banks. So, we felt that one way we would help was to release the special bills. Those special bills have been released to the banks and their liquidity ratio have improved. But, whether we like it or not, CRR, the special bills, OMO and various other instruments are our own instruments of monetary policy, which are used to control money supply. We have our numbers that tells us the optimal level of liquidity that is needed at every point in time for the economy to be stable and for us to be able to do our work. We would insist on that optimal level of liquidity. If we find any amount above that liquidity, we would suck it up because that is our job and we do not have any apology for doing our work.
With your aggressive intervention in the agric sector, what other initiatives would the central bank consider to stabilise food prices in the country. You said the CBN will be collaborating with CACOVID to support government in the purchase of vaccine, I will like you to speak more about this?
I think it is important for me to say this. We have found in the market that the activities of private commodity exchanges have not helped our country, and I am going to say so boldly. It is time for the Nigerian Commodity Exchange to be repositioned and restructured to perform the role, which by law it has been empowered to perform. We have written to Mr. President and luckily we have received Mr. President’s approval to restructure and reposition the Nigerian Commodity Exchange. It would operate like standard commodity exchanges that you can find in any part of the world, which includes the stabilisation of prices generally. We would be coming up with the agenda and framework for the restructuring and repositioning of the Nigerian Commodity Exchange and we would do so in a manner that prices must be stable in Nigeria. What we are saying is that we would not allow some self-seeking private commodity exchanges to be hoarding agric products and creating problems. This is because price stability is the core mandate of the CBN and we cannot shy away from the responsibility. Luckily, the CBN owns 60 per cent of the Nigerian Commodity Exchange; we would take control of it, we would run it and make it operate the way commodity exchanges operate in any part of the world.
You said the CBN will be collaborating with CACOVID to support government in the purchase of vaccine, what type of collaboration are we expecting?
I am one of the members of CACOVID. You all know that CACOVID in 2020 provided a lot of support. It is no news that CACOVID was able to raise close to N40 billion to build isolation centres in the 36 states of the federation and Abuja. It is no news that CACOVID spent a lot of money in buying food and palliatives that was distributed all over the country. This was through contributions that can through responsible private sector companies and we do appreciate them. But now that there are vaccines, CACOVID has said it will still try as much as possible to see how we can task ourselves again to provide vaccines and we are working with various international agencies to provide vaccines. We are going to work with the relevant government agencies because we understand it is going to be government-to-government negotiation for those vaccines. CACOVID would within its limit make available financial resources to procure vaccines. I have to say that when we purchase it, CACOVID members who are private sector would retain some of the vaccines for their staff and family members and the rest would be passed on to government. So, we are ready to support as we did in 2020.
What is the CBN doing to ensure stability in the forex market?
I have talked about it. There four forex sources and we want to see how we can diversify. We have already adjusted our currency and I think we cannot continue a spiral adjustment of our exchange rate because it has very serious, dire and devastating consequences on our economy. That, at this time will be the last option for us. We want to explore other options where we can achieve more forex revenue.
What is delaying the take-off of the infraco that was announced last year?
Yes, Mr. President last year gave approval for the infraco, which we think will help support infrastructure financing in the country. What we have done since July last year when we got the approval is to try to put the structure in place and I do think that in 2021, infraco would play an active role in funding major infrastructure projects in the country. That will ease government the stress of looking for money to fund major infrastructure like roads and rail. With that, the government can now focus on its job. Same goes to the National Arts Theatre. We are hoping that in the coming days the contract would be awarded and that facility will wear a new look.