By Ade Jacobs
The Central Bank of Nigeria (CBN) has warned that the country’s total debt is spiraling beyond manageable level.
The apex bank’s Governor, Godwin Emefiele, disclosed this at the end of the 2-day CBN Monetary Policy Committee (MPC) meeting in Abuja.
The Debt Management Office (DMO) put the country’s total debt stock at N31 trillion as at December 2020.
The CBN said its decision to retain the Monetary Policy Rate, MPR, at 11.5 per cent was a difficult one, as the MPC was torn between controlling rising inflation and expanding the economy at the same time. The CBN has retained the interest rate for three consecutive months.
Emefiele said, “The Committee expressed concern over the rising public debt stock, as recurrent expenditure remained relatively high, compared with capital expenditure, thus, signalling future debt servicing challenges.
“To improve Government revenue sources and investment in capital, the Committee called on the Government to take advantage of the take-off of the African Continental Free Trade Area (AfCFTA) which could boost domestic production and generate sizeable revenues for Government, as well as improve domestic productivity and competitiveness.”
Announcing the committee’s decision on Tuesday, Emefiele said the rate would highly disrupt the ability of commercial banks to embark on credit expansion to the real sector, at a time when the economy needed to be reflated to combat the impact of the coronavirus pandemic.
He said the Committee unanimously voted to retain the old interest rate policy.
The committee also retained the asymmetric corridor of +100/-700 basis points around the MPR; the CRR at 27.5 per cent; the Liquidity Ratio at 30 per cent.
According to him, “MPC was, as in the last meeting, confronted with a policy dilemma as to whether to aggressively combat the inflationary pressure or support measures currently aimed at stimulating growth and reversing the recession.
“Although the economy is currently in a stagflation environment with simultaneous occurrence of inflationary pressures and contracting output, the MPC resolved to reverse both developments and continue pursuing price stability in growing the economy.
“MPC was of the view, that whereas there may be wisdom in loosening, given that the impact of the global Covid-19 pandemic has resulted in constrained activities, disruption to supply chain and suppress aggregate demand, an accommodative stance may be to stimulate credit expansion and boost recovery in the short term.
“The Committee was also of the view that an expansionary policy would enable the monetary authorities to convince the financial institutions to reduce loan pricing and defer interest and principal repayments to critically affected obligors in a sustainable manner. On the flip side, MPC also opined that an aggressive expansionary stance may worsen both inflation and the negative real interest rate, thereby resulting in negative consequences on exchange rate.
“With regard to tightening, MPC concluded that this may run contrary to its objectives of providing affordable credit to households, MSMEs, Agriculture, and other output growth and employment stimulating sectors of the economy.
“MPC was therefore of the view that it should pursue its current stance of systematic synchronisation of monetary and fiscal policy accommodation through its developmental finance initiatives, aimed at mitigating the impact of the COVID-19 pandemic on Nigerians.”
The committee said the country could not afford a second lock down due to the rising wave of the COVID 19, as the economy will be worse hit, adding that efforts should be geared towards reviving small businesses, agriculture and manufacturing sectors which have been badly affected by the deadly pandemic.
According to MPC, “While expressing understanding of the public health dilemma of the recent spike in infections, MPC encouraged the Government not to consider a wholesome lockdown of the economy so as not to reverse the current gains of the stimulus earlier provided in 2020. It also encouraged the Central Bank of Nigeria Management to intensify its efforts in the targeted credit facility to household, SMEs,
“The Health Sector, as well as Agric and manufacturing sectors which would not only boost consumer spending but result in manufacturing output thereby positively impacting the GDP. On this basis, the MPC agreed to hold all policy parameters constant.”