By John Omachonu
The World Bank and some analysts have challenged the Central Bank of Nigeria (CBN) on the need for a new growth path through adoption and jettisoning of some reforms that could make the country experience sustainable and inclusive growth, warning that the one-all-fits approach will plunge the economy further into precipice.
According to them, some of the current policies are rather fueling inflationary pressures on an economy that is predominantly dependent and with higher propensity to consume.
Specifically, they have called for the elimination of petrol subsidies, growing credit to the federal government through the ways and means. Slow down on some policies, warning that they are rather impacting negatively on net government revenues alongside crude theft.
The Brettonwoods institution and the analysts are rather advocating for some other macroeconomic enablers which include; adopting a single and market-reflective exchange rate; reducing cost of governance, elimination or reduction of leakages and corruption in the system, increasing non-oil revenues by raising VAT and excise rates and strengthening tax administration as well as containing inflation by reducing the federal government’s recourse to CBN financing.
However, inflationary pressures appear to be persistent due to the effects of exchange rate pass-through, as well as other domestic challenges, which continue to fuel inflation in the country.
The inflation rate rose to 21.47 per cent in November due to increased food demand in the festive season.
According to the National Bureau of Statistics’ “Consumer Price Index” for November 2022 released on Thursday, the figure was 0.38 per cent higher than the 21.09 per cent recorded in October 2022.
“In November 2022, on a year–on–year basis, the headline inflation rate was 21.47 per cent.
“This was 6.07 per cent points higher compared to the rate recorded in November 2021 which was 15.40 per cent.
“This means that in the month of November 2022, the general price level was 6.07 per cent higher relative to November 2021.
“On month-on-month basis, the Headline inflation rate in November 2022 was 1.39 per cent, this was 0.15 per cent higher than the rate recorded in October 2022 (1.24 per cent).
“This means that in the month of November 2022, the general price level was 0.15 per cent higher relative to October 2022.”
Although the CBN has adopted restrictive measures, aimed at taming the monster, since May 2022, the money supply and the CBN balance sheet have continued to balloon, fueling inflation.
According to the World Bank’s new Lead Economist for Nigeria, Alex Sienaert, at its Nigeria Development Update and Country Economic Memorandum in Abuja on Thursday, Nigeria must stop petrol subsidy now.
Sienaert reiterated on the need for Nigeria to curb inflation through the reduction of the federal government’s recourse to Central Bank of Nigeria (CBN) financing.
The World Bank’s top official noted that a selected set of priority reforms are needed in Nigeria to chart a new growth path, in the areas of macroeconomic and institutional enablers and also investment accelerators.
Sienaert urged the Federal Government to eliminate petrol subsidy, adding that oil revenue has continued to decline despite the increase in oil prices.
He noted that the petrol subsidy which has jumped from N4 trillion to more than N9 trillion is the major reason crude oil revenue has been under pressure.
He said, “Despite the production pressures, production revenues have increased but PMS subsidies have increased, As a result, net revenues would be lower this year at N2.3 trillion than they were in 2020, it’s the main culprit.”
Ndubuisi Nwokoma, Professor of economics at the university of Lagos said some of the policies of CBN, like the redesigning of the naira and raising of interest rates, among others are fueling inflation in the country.
Nwokoma, who featured on the Arise Television’s, The ‘Morning Show’ program, advised CBN to be ‘more cautious in its policy measures’, as according to him, ‘they are impacting negatively on the prices of other items. Some of these policies, which, to me are not products of enough research and analysis are making the people to divert their funds or hoard them and take it to the foreign exchange market, thereby creating volatility in the market.’
Admonishing the federal government to always maintain fiscal discipline, the economists said the “ways and means credit to federal government by CBN is also fueling inflation.”
In fact,metrobusinessnews.com (MBN) learnt that the federal government has borrowed N6.3 trillion from the CBN in the first 10 months of 2022, based on the data from the apex bank.
The government has been borrowing from the CBN through ways and means advances, which is a loan facility through which the CBN finances government’s budget shortfalls.
The data, obtained from CBN’s website, indicated that the ways and means’ debt climbed from N17.5 trillion in December 2021 to N23.8 trillion in October 2022, which represents an increase of N6.3 trillion in 10 months.
This means that the federal government borrowed N704.3 billion from the CBN in January; N226.3 billion in February; N507.7 billion in March; and N112.3 billion in April.
It also borrowed N569.6 billion in May; N335.8 billion in June; N695.2 billion in July; N1.46 trillion in August; N749.4 billion in September; and N957.2 billion in October.
According to the data, these borrowings are currently not included in the country’s total public debt stock (federal and state governments) which currently stands at over N42 trillion.
Section 38 of the CBN Act, 2007, stipulates that the total amount of Ways and Means Advances outstanding shall not at any time exceed 5 percent of the previous year’s actual revenue of the federal government.
But the federal government’s borrowings from the apex bank has repeatedly exceeded the five per cent threshold.
“All advances shall be repaid as soon as possible and shall, in any event, be repayable by the end of the federal government financial year in which they are granted and if such advances remain unpaid at the end of the year, the power of the bank to grant such further advances in any subsequent year shall not be exercisable, unless the outstanding advances have been repaid,” the Act read.
However, CBN, in a statement on its website, said financing government deficit through ways and means advances could frustrate its efforts in pursuing its monetary policy, some of the evidences, like inflation, exchange rate stability, among others that are manifesting
“The direct consequence of Central banks’ financing of deficits are distortions or surges in the monetary base, leading to adverse effects on domestic prices and exchange rates i.e macroeconomic instability because of excess liquidity that has been injected into the economy,” the apex bank explained.
Indeed, with the current inflation figures by NBS, Headline inflation has rising for the tenth consecutive month to 21.47% in November 2022 from 21.09% recorded in the previous month.
According to Bismarck Rewane, chief executive officer of the Financial Derivatives Company, (FDC) in the current Economic Bulletin, “Food inflation and core inflation also rose in tandem with the headline inflation rate at 21.43% and 18.24%, respectively. The exchange rate pass-through effect, lingering effects of the flood and higher cost of production due to the astronomical rise in energy costs have kept inflationary pressures high in the country.
Month-on-month inflation in November increased by 0.15% to 1.39% after three consecutive months of decline. This can be attributed to an increase in demand and business activity as the festive season approaches.”
According to Rewane, global inflationary pressures, on the other hand, have maintained a downward trend as the year comes to an end. The US inflation rate declined for the fifth straight month in November to 7.1%, lower than the expected 7.3%. Inflation in the Eurozone also slowed for the first time in a year and a half, to 10% in November from a record high of 10.6% in October. Some sub-Saharan African countries, such as Botswana and South Africa, are also experiencing lower inflationary pressures as their inflation rate trends downward.
“In Nigeria, however, inflationary pressures appear to be persistent. The effects of exchange rate pass-through, as well as other domestic challenges, continue to fuel inflation in the country. Although the CBN has adopted restrictive measures since May 2022, the money supply and the CBN balance sheet have continued to balloon.
We expect the inflation rate to inch up further and remain elevated in the coming months. The monetary policy committee is also expected to remain hawkish in its monetary policy decision in the near term as the inflation rate remains above its target of 9%.”
But, Muda Yusuf, founder, Centre for the Promotion of Private Enterprises (CPPE), has advised the CBN to resist the urge to further tighten the country’s monetary policy tools.
Yusuf said this while reacting to the November inflation rate of 21.47 per cent as released by the National Bureau of Statistics (NBS) on Thursday in Lagos.
According to Yusuf, deployment of monetary tightening tools should be put on hold because the Nigerian economy is not a credit driven economy.
This, he explained, was why the outcomes of previous deployments had been inconsequential in taming inflation.
Yusuf stated that as at October, credit to the private sector as a percentage of Gross Domestic Product (GDP) was 22.7 per cent in Nigeria.
He noted that the figure was 32 per cent in Kenya; 96 per cent in Morocco; 193 per cent in Japan; 143 per cent in the United Kingdom; 216 per cent in the United States; and 39 per cent was average for sub-Sahara Africa.
“This underscores the need for variability in policy response.
“Inflation had been spiking in spite of the serial monetary tightening.
“Sustained tightening penalises entrepreneurs (especially the real sector), increases cost of credit with heightened prospects of a backlash on growth.
“Inflation restraining strategies should accordingly focus on productivity boosting supply side factors and reduction in ways and means funding of deficit,” he said.
Also, John Agbo, financial analyst doubts the reality of inflation rate with current happening, adding that, in reality, inflation in Nigeria cannot be less than 45 per cent, seeing that with each passing day, the prices of items soar.
He stressed the need to support the critical sectors of the economy like the manufacturing and producing aspects through special funding window to include the very small businesses and even the start-ups.