Desirous of ensuring monetary and fiscal collaboration in order to turn the economy around, managers of the economy from the Central Bank of Nigeria (CBN), the Ministries of Finance, Budget and National Planning, and Industry, Trade and Investment confirmed THISDAY’s exclusive report on Sunday of their meeting in Abuja at the weekend to harmonise their policy perspectives.
Speaking at the opening of the two-day Monetary Policy Committee (MPC) retreat at the CBN headquarters in Abuja, with the theme: “Pathway to Price Stability Conducive to Economic Growth,” the CBN Governor, Mr. Godwin Emefiele, at whose instance the meeting was convened, reiterated the need for the country’s monetary and fiscal authorities to collaborate and harmonise standpoints so as to develop the economy rapidly.
According to a statement on Sunday at the end of the meeting, Emefiele, who also chairs the MPC which shall start its two-day meeting on Monday in Abuja, said the retreat which for the first time had in attendance large representation of the fiscal authorities, is coming at a time the country is facing serious economic challenges.
He added that finding sustainable solutions require broadened participation of colleagues from the fiscal side.
He said the retreat, as a brainstorming session, would provide perspectives on certain MPC decisions.
He said it would also close the gap on the coordination between monetary and fiscal authorities to chart a common course and take decisions to develop the economy.
In his remarks, the Minister of Budget and National Planning, Senator Udoma Udo Udoma, said both the monetary and fiscal authorities have no choice but to work together to guarantee the country’s economic growth.
He posited that the pathway to a lower interest rate was through monetary and fiscal authorities collaboration with the private sector.
Also speaking, the Minister of Finance, Mrs. Kemi Adeosun, and her Industry, Trade and Investment counterpart, Dr. Okechukwu Enelamah, both agreed that solving the challenges facing the Nigerian economy required unconventional tactics.
Adeosun, while disclosing that there remained a huge number of unbanked Nigerians whose contributions to the economy are hardly captured, said the government must devise ways to bring them into the financial mainstream.
She also hinted that based on the current realities, the federal government would have to borrow more to meet its infrastructure funding obligations.
Enelamah emphasised the need for the monetary and fiscal authorities to ensure business, market and investor confidence, as well as policy integrity, in order to improve on the ease of doing business in Nigeria.
In her presentation, the Deputy Governor, Economic Policy, CBN, Mrs. Sarah Alade, said the onus of achieving the dilemma of low interest and exchange rates as well as low inflation should not entirely be the function of the monetary authority. She said it requires collaboration with fiscal authorities.
According to her, there was need for deliberate policies that would promote stability and engender growth in the economy.
Meanwhile, as the MPC commences its second meeting for the year on Monday, attention would be focused on the committee.
The meeting will be coming on the back of slight improvements in most macroeconomic indices ranging from the country’s GDP growth rate to foreign exchange administration.
In the domestic economy, the National Bureau of Statistics (NBS) last month reported that the Nigerian economy contracted by 1.5 per cent in 2016, marginally lower than the 1.7 per cent forecast by the International Monetary Fund (IMF).
Also, the rate of contraction in the fourth quarter of 2016 slowed down to -1.3 per cent from -2.24 per cent in the third quarter of the same year.
The inflation report for the month of February also indicated a moderation in the Consumer Price Index (CPI) to 17.8 per cent year-on-year, the first decline in 15 months.
Furthermore, increased foreign exchange supply to the market since last month when the central bank announced changes to its foreign exchange policy, saw the naira appreciate to N449 to the dollar last Friday, just as the CBN has continued to shore up foreign reserves to $30.3 billion on the back of improved oil output and prices.
But as the committee sits to deliberate on a rate decision and other monetary tools, Afrinvest is of the view that the MPC will maintain the status quo on all rates.
The investment firm also said the CBN would have to focus on improving liquidity in the foreign exchange market.
“A rate cut could dampen CBN’s efforts to mop up excess liquidity from the system which could hamper the stability of the foreign exchange market.
“On the flipside, a hike in the rate may also be sub-optimal at this time as this may further squeeze out liquidity from the banking system as banks may deploy funds towards investment securities while also constraining growth, thus worsening the economic conditions.
“Therefore, on a balance of considerations, we think the MPC will maintain status quo on all rates while trying to consolidate on the gains of recent improvements that have been recorded in inflation, the parallel market FX rate, increase in oil production and the release of the Economic Recovery and Growth Plan by the fiscal authorites,” Afrinvest said.
Financial Derivatives Company Limited, on the other had, stated that “the next MPC meeting in March could see the CBN take a more decisive step towards an accommodating stance following an improved (though still negative) GDP growth rate and a possible decline in headline inflation”.