MetroBusinessNews

How Lack Of Policy Synergy Between FG, CBN Affecting Economic Growth Prospects

Nigeria’s rising debt profile and the accompanying larger percentage set for servicing may truncate recent efforts by the Central Bank, (CBN) to curtail inflationary pressures through rate hike, metrobusinessnews.com investigations and interactions with analysts have shown.

This is because there seems to be lack of synergy between governments’ fiscal policies and CBN’s monetary policies which some analysts say are not based on solid fundamentals and sometimes belated and therefore ineffective.
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 Nigeria’s current debt is at N41.60trn and still growing.
For instance the Debt Management Office (DMO) which is basically preoccupied with defending rising nation’s debts said the federal government in first half of 2022 raised a total of N1.84 trillion through the FGN bond market to finance the N6.26trillion 2022 budget deficit.
FGN bonds are debt securities of the Federal Government, (FGN) issued by DMO on behalf of the federal government and it has the obligation to pay the bondholder the principal and agreed interest as and when due.
The N1.84 trillion raised by the DMO from local investors represents an increase of 29.8 per cent compared to N1.42 trillion FGN bond raised in H1 2021.
The DMO FGN bond auction result revealed that February 2022 has one of the highest amounts raised by government, while January has the lowest amount raised.
The February auction result for the 12.50% FGN JAN 2026 (Re-opening, 10-Year Bond) & 13.00% FGN JAN 2042 (Re-opening, 20-Year Bond) recorded allotted amount worth N415.42 billion (inclusive Non-Competitive Allotment), while auction result for January’s 12.50% FGN JAN 2026 (Re-opening 10-Year Bond) & 13.00% FGN JAN 2042 (New Issue 20-Year Bond) recorded N170.64billion allotted amount by the debt management office.
The local debts form substantial part of the nation’s debt overhang.

But the nation’s debt service to revenue ratio is over 80 percent, indicating a rising debt service payment amid the government dwindling revenue

Debt service payment rose by 109% to N896bn in the first quarter of 2022 compared to N429bn in the last quarter of 2021.
“High debt level (currently at N41.60trn), in the era of global interest rate hike makes it more expensive to service debt, potentially keeping the country on a fiscal cliff.“ says Bismarck Rewane, chief executive of Financial Derivatives Company in the current edition of Digest.
More worrisome is the fact that CBN’s exposures to federal government through ways and means are on the rise and mostly secretive, just like some of the external loans secured, particularly for infrastructure, but for which the details of the terms are not in the public domain.
“What’s in the wisdom of CBN trying to fight inflation through its own policies while federal government continues to inject liquidity into the system.
And to make matters worse, the velocity of the funds is skewed in favour of either some sectors of the economy or even allegedlywwithin the reach of some  individuals and institutions, while major ones like education continues to suffer neglect.
“These manifest in payments of subsidies which the positive impact is not being felt on the target audience or various leakages within the system,“ says Friday Ameh, Lagos based analyst.
Continuing, he said, “it is either CBN has lost focus or may be bugged down by other less important activities like  some of the interventionist programs as part of what it terms, it’s developmental banking.“
Rewane further observed that although FAAC allocation showed an improvement due to the current elevated oil prices, it is further constrained by the country’s subpar oil production level.
“This is in addition to the rising NNPC deductions for subsidy payments, “ he added.
 He further noted that the  NNPC is planning to deduct a sum of N126bn from the June FAAC allocation.
The development has continue to make NNPC to register zero remittances to the Federation Account since this year.
Analysts are waiting to see more transparency in the operations of the ‘new NNPC ltd’, particularly as it relates to importation of refined Petroleum products and subsidy payments.
This is because  a decline in the FAAC Allocation, as currently being experienced, would compound the state governments’ financial woes, resulting in salary cuts and staff layoffs, which will likely affect aggregate demand and consumption levels as income remains squeezed.
With some states that have been operating percentage payments of salaries to local government staff and pensioners, particularly, over the years, their condition would further deteriorate and impoverishment continues.
Consequently, turnover and profits of manufacturing concerns will be impaired and unsold stock would continue to rise.
The implication is that consumers are now in an even more perilous situation.
This is in addition to the resurgence of fuel scarcity, which has refused to go away completely, particularly in some towns and cities, where petrol is being sold for between N200/N300 per litre, with the attendant negative effects on cost of living and transportation.
Also, businesses are left to battle with rising cost of operations as the price of diesel seem to never stop the upswing, selling for between N800/N840 per litre.
Also the lingering forex shortages, which is causing disaffection between the banks and their customers, among other structural rigidities, are seen as time bombs that would soon expose volatility in foreign exchange market and precarious conditions of some banks.

To worsen it all, the Economic Intelligence Unit (EIU) has ranked Lagos, the second- worst city to live in among 172 cities worldwide.

The state, which has at least 14 million inhabitants remains the most populous city in Nigeria.
According to Rewane, “rapid population growth combined with a severe lack of housing, healthcare, and transportation infrastructure could make living conditions worse and make it difficult for businesses to operate.
 This could put the state and even the entire country at risk of divestment.“
The rising propensity for foreign consumption of goods in an import dependent economy with little production, may have put CBN on a tight rope, more so when policy options are becoming minimal.
But, rather than acting on the spur of the moment and embarking on panicky monetary policy measures, some analysts say more efforts and concentration should be on its core mandate of price stability, stable exchange rate among others and divest itself of its ‘developmental banking’.
With the enormity of challenges, typified by rising inflation, unemployment, low disposable income and dwindling fortunes of the local currency, it may not be out of place for CBN’s Monetary Policy Committee to tinker again with the Monetary Policy Rate in their next meeting.
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