As oil prices maintain a sustained recovery averaging $57 per barrel with consequent increase in oil revenue distributed monthly to the federal, states and local governments, the Central Bank of Nigeria (CBN) has warned of the consequences of not saving for the ‘rainy day’.
Rising from its 260th Monetary Policy Committee (MPC) and the first for 2018, the CBN frowned at what it described as “growing FAAC distribution” as oil revenue rise without a robust savings programme to wade-off future shocks from falling oil prices since Nigeria’s economy is still largely dependent on oil revenue. Already, oil prices are showing signs of falling again.
Briefing journalists at the end of the MPC meeting yesterday in Abuja, the CBN Governor, Mr. Godwin Emefiele said, the “MPC observed increasing monetization of oil proceeds as evident in the growing Federation Accounts Committee (FAAC) distribution, relative to the 2017 level of disbursements. The Committee urged the Government to initiate strong stabilization programmes and to freeze the growth in its aggregate expenditure and FAAC distributions in order to create savings; needed to stabilize the economy against future oil price related shocks.”
The CBN’s admonishment is perhaps based on the recent experience where Nigeria’s economy went into a terrible recession in second quarter 2016 principally because oil revenue dropped significantly. Because there was no buffer savings, the economy had to wait for the oil process to recover before it exited the recession, a situation the CBN is forewarning against.
On the key monetary policy rates, the CBN governor said all the nine members who attended the MPC meeting voted to retain all key rates to consolidate on the gains already recorded in the economy as changing positions may erode all that has been achieved in the past one year.
“On the argument to hold, the Committee believes that key macroeconomic variables have continued to evolve in a positive direction in line with the current stance of macroeconomic policy and should be allowed more time to fully manifest” he said adding that the committee thus voted to retain the MPR at 14.0 per cent; CRR at 22.5 per cent; liquidity ratio at 30.0 per cent; and asymmetric corridor at +200 and -500 basis points around the MPR.
The MPC also expressed worry over rising domestic debt, the impact on the cost of borrowing and advised the FG and perhaps states to borrow less locally. The CBN also tasked the government to pay the over N2.7trn domestic debts owed contractors so they could meet their debts obligations to the banks to drive down the banks’ none performing loans.
“The committee also noted that as government pays off its huge contractor debts, a sizeable portion of these non-performing loans will be addressed” Mr. Emefiele said adding that “As the fiscal sector continues to settle its outstanding liabilities, it reduces its domestic debt profile, thus increasing the liquidity of the banking system.”
On Nigeria’s reserve position, Mr. Emefiele said the external reserve is now at $46.699 bn as at March 29, 2018.
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