Connect with us

Business Analysis

CBN Cushioning COVID-19 Impact on the Economy

Published

on

Central Bank of Nigeria CBN
Share

By Ademola Oyetunji 
The year 2020 started on a brighter and prospective note for Nigeria and Nigerians, with the expectation of increased economic activities, arising most especially, from the CBN’s sustained interventions in agriculture and Small and Medium Enterprises (SMEs).

 


Economic indices also proved this until what was believed to be a localised virus in a town – Wuhan, in China, took on the world ravaging not only economies but with millions of human casualties.

 
Nigeria is battling to contain it, as no one expected its devastating destructive capacity. Other viruses like SARS and Ebola were not these destructive. It has no doubt brought unquantifiable damage to world’s harmony and economic life.


In a series of intervention by the Central Bank of Nigeria, CBN, at the wake of the novel COVID-19 Coronavirus outbreak, the Bank unveiled a succession of targeted facilities starting with a N50billion credit facility, followed by another N100billion credit support intervention for the health sector. 
The Bank’s twin intervention funds were in quick response to the coronavirus pandemic, which has caused unprecedented disruptions in global supply chains, sharp drop in global crude oil prices, chaos in global stock and financial markets, lockdown of large swaths movements of persons in many countries, including Nigeria.


It also berthed here in Nigeria when the CBN was putting final dots on the organisation of its second edition of ‘Going for Growth 2.0’. (The first edition was held in Lagos in June 2019.) It is a Think-tank stakeholder assemblage of practitioners in the private and public sectors, bureaucrats and technocrats, bankers and industrialists concerned about the economic wellbeing of Nigeria.  


The stakeholder meeting was held at the head office the Bank and it coincided with the outbreak of the novel COVID-19 virus. The fear of every stakeholder was palpable knowing how fragile the economy is, and having just exited economic recession and on the verge of getting its groove back. 
However, the mono-product economy of Nigeria further exposed its fragility and precarious situation, especially with the way advanced economies were crumbling, battling how to salvage the ruins caused by the menace.  The Nigeria situation is made worse as its major revenue source is hinged on oil proceeds for sustenance. Previous economic diversification efforts were only achieved on papers without commensurate commitment to achieve the programme.


The CBN Governor shortly on assumption of office admonished the handlers of the economy to brace up for the diversification of the economy to agriculture and non-oil products as the future of oil as source of sustenance is nigh. Emefiele became the lonely voice in this advocacy. 


He was proved right when world oil prices dipped in 2015/2016 and the economy slipped into recession. Concerted efforts were made through various monetary policy interventions to revive the economy. He succeeded when hope seemed lost. And ever since he had been on the frontline canvassing for economic diversification and in the same vein frowning at the increasing public debt without commensurate buffers. 


He was worried about the unabating internal security crisis caused by militancy and insurgence, particularly in the food producing areas of the country and has gravely affected economic growth, food security, and rising inflation. The CBN had also been concerned about the inadequacy of infrastructure in the economy.


These, and many more, are being addressed by the Bank in intervening in agriculture value chain, power, aviation, cotton and garment industry including ICT and the creative industry, as contained in the Bank’s five-year Policy Thrust. 
Notable is the matrimony between the monetary regulator and deposit money banks under the aegis of Bankers’ Committee agreeing to work together for the economy. These were ongoing efforts when COVID-19 made its way into Nigeria. 


In his quick response to avert total collapse knowing that the economy does not have the shocks required to weather the pandemic, he in sequence to its earlier held ‘Going for Growth 1.0’ in Lagos last year, conveyed its second edition in expectation of likely economic disruption that may arise with the virus outbreak. 
Thus, he rallied a coalition of private sector operators, including industrialists, bankers and business moguls, on the urgent need to jointly combat the emerging COVID-19 crisis in Nigeria, particularly as the international crude oil prices were beginning to dip unprecedently in decades. 


Countries around the world are individually and frantically fighting for themselves and their economies with different approaches peculiar to their environment and needs. In this circumstance, Nigeria is not an exception. 
The challenge is being a mono-product economy, oil, dwindled fiscal buffers, weak infrastructure, poverty and unemployment. Thus, the challenge at hand is everyone’s problem that requires every hand on the deck.


Godwin Emefiele, the Governor of CBN, had said, “The need for all Nigerians to play a role in this fight cannot be understated as we are quite literally in the fight of our lives. I must highlight the fact that this is not just about bringing money. Your time, your services, your products will all be helpful.”


Thus, from the foregoing, coupled with efforts being put in place, suitable to Nigeria’s peculiar needs in combating the virus and immune the economy from crisis, the CBN Governor rallied a coalition, the Coalition of Private Sector Against COVID-19, CACOVID, to support the Presidential Task Force on COVID-19 set up by the Federal Government to coordinate its response.  

He outlined the objectives of the coalition to include mobilising private sector thought leadership; mobilise private sector resources; increase general public awareness, education and buy-in; provide direct support to private and public healthcare’s ability to respond to the crisis and support government effort knowing that with the dwindled revenue, the government alone at this period cannot handle this.


The Coalition Against COVID-19 (CACOVID) is a private sector task force in partnership with the Federal Government, the Nigeria Centre for Disease Control (NCDC) and the World Health Organisation (WHO) with the sole aim of combating Coronavirus, COVID-19, in Nigeria. 


This Coalition is tasked to pull resources across industries to provide technical and operational support while providing funds and building advocacy through aggressive awareness drives. In addition to the efforts of the federal government, the Coalition will provide and equip medical facilities in the six geopolitical zones in Nigeria. 


This also involves the creation of testing, isolation and treatment centers, and include the provision of Intensive Care Units (ICUs) and molecular testing labs.On its part to the cause, the CBN announced a N50 billion targeted credit facility stimulus package with 5 percent interest rate, that aims among others, to cushion the adverse effects of COVID-19 on households and MSMEs, by supporting households and MSMEs whose economic activities have been significantly disrupted by the pandemic virus, and stimulate credit to MSMEs to expand their productive capacity through equipment upgrade, and research and development. 


While the twin N100 billion credit support intervention for the health sector seeks to strengthen the industry’s capacity to meet potential increase in demand for healthcare products and services. Pointedly, the CBN noted that “the scheme is to provide credit to indigenous pharmaceutical companies and other healthcare value chain players intending to build or expand capacity”.Emefiele further noted that, “the scheme is expected to improve public and private investment in the healthcare sector, facilitate improvements in healthcare delivery and reduce medical tourism to improve foreign exchange conservation”.


Obviously acknowledging MSMEs as the heart of any economy, the N50 billion scheme will be financed from the Micro, Small and Medium Enterprises Development Fund (MSMEDF) to cover key economic activities including agricultural value chain, hospitality (accommodation and food services), airline service providers, manufacturing and value addition, trading and any other income generating activities as may be prescribed by the CBN. 


To accomplish its objective, NIRSAL Microfinance Bank has been chosen as the financial institution for the Scheme. The N100 billion health intervention fund as expected is to be funded from the Real Sector Support Facility-Differentiated Cash Reserves Requirement (RSSF-DCRR) and has Deposit Money Banks and Development Finance Institutions (PFIs) as eligible to disburse the fund.
The CBN action comes against the background of the governor’s pledge on assumption of office in 2014, when he promised to make the Bank a catalyst for economic growth. This underlies several monetary policy measures he had initiated to keep the economy running. He did not stop at that, he announced a N1.1trillion stimulus package to also support local manufacturing and boost import substitution to ensure that laboratories, researchers, and innovators work with global scientists to patent and produce vaccines. 


These efforts were initiated against global monetary and fiscal responses to the debilitating effect of the COVID-19 attacks across the world in general, and Nigeria in particular. In the United States, the Congress approved about $2 trillion stimulus package in response to the economic impacts of COVID-19. While corporations will be the biggest recipients of the bailout, some of the fund will be paid directly to Americans hit by the pandemic with those directly impacted by the economic effects of COVID-19 have been slated to receive robust government support.


The United Kingdom, had also launched a stimulus package to stabilise Britain’s virus-hit economy, which include the government paying the wages of workers throughout the country. So also, is India, among other countries. 


The federal government of Nigeria has also announced a N500 billion stimulus package as the fiscal response to keep the economy afloat. Though its details have not been revealed, as it is awaiting National Assembly approval.

The CBN policy response to COVID-19 has thus provided a calm in the economy, helping manufacturers to continue production and keep plants running to meet domestic demand without arbitrary price hike to account for the rising cost of raw materials. 


These unprecedented initiatives to support pharmaceutical and healthcare companies are commendable, given the shutdown of countries across the world, the rising spread of the COVID-19 virus in Nigeria, and sustained panic buying of pharmaceutical products domestically.


With the drop in the world price of crude oil, hovering around $20 – $26 p/b, about 57 percent below budget benchmark and revenue expectations, there is therefore an urgent need for the government to complement the CBN initiatives and go beyond its monetary interventions and fashion a pragmatic and actionable fiscal stimulus package to assuage the effects of the lockdown on the poor and businesses. Oyetunji wrote from Ibadan, Oyo State 

Business Analysis

The New forex regime and 2024 Budget Proposals

Published

on

Share

By Uche Uwaleke 

Overall, the 2024 budget proposals hold a lot of promise for the economy if well implemented.

A major snag, however, stems from the likely distortionary impact of the new Forex regime.

A naira float in the face of weak supply and strong demand with its attendant forex market volatility introduces uncertainty in budget implementation.

This is why I consider the N750 to the dollar rate used for the 2024 budget as a tall order.

It’s most likely the exchange rate will be the major cause of wide budget variances in the 2024 budget on account of NAFEM operations.

This is particularly so in respect of the dollar-denominated component of the budget much of which can be found in the over N3 trillion proposed defence spending as well as in recurrent debt expenditure.

A volatile and high exchange rate will increase the cost of servicing external debt and further widen the budget deficit.

In my view, a well implemented and corrupt-free  dual (not multiple) exchange rate regime (one official including for debt service and another tier for other transactions) helps to bring certainty in government procurements and short term planning in general.

A related issue has to do with the mode of financing the over N9 trillion deficit and its likely impact on cost of capital for firms and the stock market.

Unlike in previous budgets where the amount voted for new borrowings were split fairly equally between domestic and foreign sources, this time around domestic borrowing is taking up a huge chunk at about 78% (N6.1 trillion out N7.8 trillion provisioned for new borrowings)

This can have the effect of  crowding out the private sector, hiking interest rates, increasing cost of funds and depressing the equities market as investors migrate to fixed income securities. The outcome will be a further weakening of the productive sector.

In this regard, the government is advised to explore more opportunities for concessional project-tied loans from multilateral and bilateral sources. This will help to boost forex reserves and stabilize the exchange rate.

With respect to borrowing domestically, it’s important that emphasis should be placed on the use of the right instruments such as infrastructure bonds as opposed to FGN bonds that are inflationary prone.

Uwaleke is Nigeria’s first Capital Market Professor 

Continue Reading

Business Analysis

CBN’s Monetary Policy Committee Meeting and the Frenzy? 

Published

on

dailyasset-greetings
Share

By Ademola Oyetunji 

The atmosphere in the Nigeria’s financial sector is in a state of frenzy. Stakeholders are befuddled on why the apex bank’s monetary policy committee have not met. This is because the CBN had twice postponed the meeting under the leadership of its new Governor.

 

The first postponement scheduled to hold shortly after the appointment of Mr.

Cardoso and his four deputy governors, was obviously put on hold to enable them settle down.
The reason could also be that the new management team needs time to study and digest President Tinubu’s 8-point agenda and current trends in the financial system to align them with his vision.

 Mr. Cardoso at the NASS screening had promised to ensure the independence of CBN. He also pledged to ensure that the CBN under his watch will play its role as a catalyst for growth, and adviser to the government.  He said “his-CBN” will shy away from interloping responsibilities.

It is also a common knowledge that President Tinubu had ordered a clean house of the Bank believed to have veered of its mandate under the immediate past governor.

It is also a public knowledge and concern that the Naira has been under attack by speculators and rent seekers, a chronic headache for the Bank’s new helmsmen. Forex illiquidity has also become malignant. Thus, convening the MPC meetings amidst these challenges may not be an immediate priority, rather they have been unobtrusively addressing and stabilizing the financial sector. The gains of these efforts are visible, though the parallel market is still chaotic.

The postponement of what was supposed to be its last meeting for the year further heightens the palpable fear and uncertainties of the consequences of the MPC not meeting. Stakeholders’ fear cannot be dismissed as Nigerians battle economic hardship, rising food inflation and unbridled Naira depreciation.

However, the CBN Act 2007 section 12 saddles the Committee to ensure price stability and support economic policy of the federal government. The Committee consists of the Governor as the chairman, the four deputy governors, two members of Board of Directors, two members appointed by the Governor, and two members appointed by the President to formulate monetary and credit policy. 

It is the highest policy making organ of the Bank responsible for reviewing economic and financial conditions in the economy. It also determines the appropriateness of policy applications in short to medium term, and regularly reviews Bank’s monetary policy framework, and adopt changes when necessary. 

The Act mandates the Committee to communicate monetary and financial policy decisions effectively to the public and must ensure the credibility of the model of transmission mechanism of monetary policy. It is to meet bi-monthly, except otherwise (as it is the case presently) or on emergency.

Until the appointment of the present CBN Governor, the Committee had met four times under the last dispensation. It is also a public knowledge that boards of federal parastatals and agencies were dissolved by the President with many yet to be reconstituted. The CBN board is one of those dissolved and yet to be reconstituted, neither is it a public knowledge that the President has nominated his two candidates. 

Hence, the Bank presently does not have the required number to form a quorum, nor the Governor and his deputies have the constitutional mandate to overtly make certain monetary policy decisions without the approval of the Board.

The concern by the public is normal, particularly the way economic saboteurs have been attacking the Naira and manipulating the parallel forex exchange market. The concern is also noted considering the latest inflationary figure, 27.33%, released by the National Bureau of Statistics (NBS).

But to allay the fears of the public, the Bank’s spokesman, Dr. Isa Abdulmumin had on the eve of the scheduled September MPC meeting issued a press statement to announce its postponement. He regretted any inconvenience the change in date may have caused the Bank’s publics. 

The hullabaloo over non-holding of the meetings may have been misplaced but expected. And with Nigeria’s current economic reality, it behooves the economic managers to be strategic in meeting economic saboteurs at their wits ends.

Notable economists and financial technocrats have entertained worries over continuous postponement of the organ’s meeting. They believed it may further heighten economic uncertainties. Mr. Boluwafemi Agboladun, a chartered accountant, expressed fears that the silence from the Bank amidst economic turbulence is unsettling as no concrete reason was given for not holding the meetings. 

He was however quick to add that the strategy adopted so far by the new management of the Bank is yielding positive dividend. There is stability in the forex market, and Naira exchange rate is no longer volatile. The strategic management adopted by the CBN so far, he noted, is commendable, making currency peddler unsure of what next is coming out from the Bank.

Agboladun also felt that the new CBN Governor may have decided to start the new year with his own monetary policy calendar after he would have gotten a clear heads-on of the fiscal direction to align it with his monetary policy philosophy. He stressed that, it is better for the CBN and the government to have a clear distinction in roles, unlike the muddled and overlapped responsibilities witnessed in the last administration.

Feranmi Deepak, a public commentator, was not surprised that the meeting, though statutory, has suffered two postponements. He was only worried that the outcome of the meetings would have avail the public of the monetary policy direction of Mr. Cardoso, as it would have road mapped investment decisions by local and foreign investors.

The CBN, he observed, may also be taking its time coming out with its agenda. This, he noted, may be due to the ongoing economic diplomacy drive of the President who has been unrelenting in his travels, marketing Nigeria. Therefore, the CBN, he said, “may be collating all he has been saying to the investing community to develop its monetary policy roadmap as government banker and advisor”. 

He was optimistic that the MPC meeting would assume its normal mode next year, when probably the President in his wisdom would have reconstituted the bank’s board to allow for normalcy in its calendar and restore stability in the financial sector.

*Ademola Oyetunji writes fro

Continue Reading

Business Analysis

Tweaking CBN Act, NASS Must Tread with Caution 

Published

on

dailyasset-greetings
Share

By Chisom Adindu 

The ongoing effort by National Assembly to tinker with the Central Bank of Nigeria’s Act, 2007, has been generating heated debate within the polity. The concern has been the rationality of the exercise.  This effort is spearheaded by two distinguished Senators, Senators Steve Karimi and Darlington Nwokocha.

 

The bills are – ‘A Bill to Amend the Central Bank of Nigeria Act 2007, and Matters Connected Therein’, and An Act to Amend the Central Bank (establishment) Act 2007 to Make the Central Bank More Transparent and Accountable in its Operations and to Ensure Enhancement of its functions and for Connected Matters’.

The crux of the two amendments already consolidated by the Senate is the ban on the CBN governor and his deputies from partisan politics, reconstitution of the CBN Board; subjection of CBN staff renumeration to the Salaries and Wages Commission; and ceding the position of the Board Chairman to a person outside the CBN. Also proposed prohibition of use of foreign currency in local transactions. Until this proposal, the Governor doubles as the Board Chairman.

The preoccupation of the sponsors of the bills is to enhance transparency and efficiency of the Central Bank of Nigeria, and to strip its governor of certain powers. The Senate Committee on Banking and Finance is saddled with the responsibility of reviewing and working on these bills for the Senate to take a position. 

Whatever is the expectation of the sponsors, it is important that the National Assembly does not in a spasm of emotion erode the independence of the Bank. CBN Act 2007 had settled this.

It was a common knowledge that the immediate past CBN governor’s hiatus and unprofessional conduct by engaging in partisan politics may have warranted this quest. His action was an infraction, and antithetical to his oath of office. It was also against the norms of central banking ethics. Anger against a rare singular infraction should not be used as an excuse to cripple a vital organ of government as the CBN. It amounts to throwing the baby away with the bath water. 

An International Monetary Fund (IMF) working paper titled: The Role of Board Oversight in Central Bank Governance: The Legal Design Issues describe the Central Banks as a public law institution established to fulfill essentially sovereign functions delegated to them by the State. It admitted that certain central bank laws explicitly prohibit certain operations. 

Continuing, the paper said, for a central bank to be effective, it must enjoy a high level of autonomy vis-à-vis both political institutions and private economic interest. This autonomy it enumerated as: institutional, functional, personal, and financial. Institutionally it said the central bank should not be influenced by the State or private third parties in its decision-making in the context of the performance of its functions, e.g., through ministerial instructions. 

Functional points to its capability to implement its functions without direct governmental interference, and Personal ensures that key decisions makers of the central bank (Governor and members of the Executive Board, Monetary Policy Committee and Oversight Boards) are autonomous from political and private economic interest. 

The Financial entails the capability of the bank to pursue its mandate by way of the financial means required to do so (the emphasis is mine).

Banning the CBN governor and his deputies from partisan politics is a good proposal, and well approved. But to appoint/impose an outsider as the chairman of the board other that its governor is incongruous with global central banking practice. 

Typical of our clime, as being proposed, will not augur well for a critical institution as the CBN. The infraction of its former governor – highly condemned, is not an excuse to deal a fatal blow on the Bank. It amounts to killing a fly with a sledgehammer.

Subjecting its staff salaries to an external body violates the financial independence of the Bank. Infractions committed by its former governor has nothing to do with staff welfare. There are other organs of government earning far higher than the CBN staff, yet the legislators turned the blind eye. 

Why are all eyes on the CBN? Are the Nigeria National Petroleum Plc staff salaries a subject of scrutiny by the National Salaries and Wages Commission? The Debt Management Office (DMO), Nigeria Deposit Insurance Corporation (NDIC), and many others. It is public knowledge that the staff of some of these agencies earn fantastically higher, (excluding other perks) than the CBN staff.

The Central Bank of Nigeria like its peers is the heart of the monetary system of the country. Nigeria’s economy is influenced heavily by the actions it takes, thus, any spasm of irrational decisions to alter or whittle what international investors and global partners would see as an erosion of the Bank’s independence, will further hurt the already fragile economy.

 It was the Central Bank of Nigeria during the COVID-19 pandemic that ensured the stability of the economy while other organs of government were at a loss on what to do. The CBN should not be politicized. What happened under Godwin Emefiele was a rash decision that should be treated in isolation. 

Amending the Act is not investor friendly, and it should be jettisoned. It will also encumber the effectiveness of monetary policy, and once the institution is seen as an appendage of the political class, there will be loss of faith, and confidence, in the economy. Ultimately, the economy will suffer for it. 

Mr. Uche Tochukwu, a financial expert, said tweaking the CBN Act now, just because of what happened under Godwin Emefiele will hurt the economy and the integrity of the CBN. He welcomed the decision of the lawmakers to ban the Governor and his deputies from partisan politics but frowned at appointing an outsider as the Bank’s Board Chairman. He said it is an aberration. 

Tochukwu called the attempt to subject the CBN staff salary to Salaries and Wages Commission as meddlesomeness. What about their own opaquely fatty allowances the public has decried? Doing that, they advised, will kill the morale of the staff. Are we even sure the staff are earning fantastically, he asked?

The legislators should get serious with other national pressing issues in the economy rather than tampering with the CBN Act. Dr. Babatunde Adisa, an economist expressed this. He said, globally, independence of central banks is high advocacy, why is our own legislators thinking of reversing the CBN gear of progress. He said those advocating for the weakening of the CBN governor’s power or administration of the institution are not in tune with reality.

Thus, the National Assembly should be guided as posterity will not forgive them if they are resolute on this unprofitable voyage.

Chisom Adindu writes from Umuahia, Abia State.    

Continue Reading

Read Our ePaper

Top Stories

NEWS10 hours ago

FCT HOS: Why President Tinubu Extends Atang’s Tenure By 6 Months

ShareBy Laide Akinboade, AbujaPresident Bola Ahmed Tinubu, has approved the extension of Atang Udo Samuel, as the the Head of...

NEWS10 hours ago

FGGC Benin Emerges Winner of 2023 National Senior Secondary Schools’ Debate

ShareBy Tony Obiechina, AbujaThe Federal Government Girls College, Benin has emerged overall winner of the 2023 National Senior Secondary Schools’...

NEWS10 hours ago

We’re Meeting Our Targets on Airport -Kuje Road Construction – Wike

ShareBy Laide Akinboade, AbujaThe Minister of the Federal Capital Territory (FCT), Mr Nyesom Wike, haom Wednesday,  expressed satisfaction with the...

NEWS11 hours ago

Osun to Partner FG on Culture, Tourism Development

ShareFrom Kunle IdowuGovernor Ademola Adeleke has secured a partnership deal with the Ministry of Tourism on the development of tourism...

POLITICS11 hours ago

I Didn’t Call for Ganduje’s Resignation – Alia

ShareFrom Attah Ede, MakurdiGovernor Hyacinth Alia of Benue has denied calling for the resignation of Alhaji Abdullahi Ganduje, the All...

POLITICS11 hours ago

Mutfwang Meets PDP North Central Leadership Calls for Unity among Officials

ShareFrom Jude Dangwam, JosThe Executive Governor of Plateau State, Barrister Caleb Manasseh Mutfwang has called for unity a purpose among...

POLITICS11 hours ago

FG Seeks Swedish Govt Support on Technical Education

ShareBy Tony Obiechina, Abuja The Federal Government is seeking the support of the Swedish Government to help drive its ongoing...

Metro11 hours ago

FG Declares March 29, April 1, Public Holiday to Mark Easter Celebration

ShareThe Federal Government has declared Friday, March 29, and Monday, April 1, as public holidays to mark the Easter celebration.This...

NEWS11 hours ago

Nigeria Prepared to Expedite Sustainable Dev’t in Collaboration with Partners — Tinubu

SharePresident Bola Tinubu yesterday said his administration is committed to deepening democracy by ensuring adherence to the rule of law...

NEWS11 hours ago

Police Engage Bandits in Gun Battle, Kill two, Arrest One in Benue

ShareFrom Attah Ede, Makurdi Men of the Benue State Police Command yesterday engaged bandits in gun duel in Mba-Mtsar village,...

Copyright © 2021 Daily Asset Limited | Powered by ObajeSoft Inc