- Fiscal and monetary authorities should work together in the nation’s interest
Central Bank of Nigeria, CBN, voted at the end of its Monetary Policy Committee (MPC) meeting in Abuja on September 20 to retain benchmark interest rate at 14 per cent. The committee also kept the cash reserve ratio and liquidity ratio at 22.5 per cent and 30 per cent, respectively. This was against the expectation of the Minister of Finance, Kemi Adeosun, who earlier on September 19 urged the CBN to consider cutting interest rates, to make it easier for the Federal Government to take domestic loans and stimulate the economy. The minister was quoted as saying: “We need lower interest rates, because when we are borrowing and interest rates go up, it increases our cost of debt service and it reduces the amount of money that is available to spend on capital projects”.
For an economy which only a few weeks back slipped into recession, the outcome of MPC meeting is certainly revealing in a number of ways. First, is the dissonance on the reading of the current crisis. Second, are the perceptible differences between the monetary authorities and their counterparts on the fiscal side on what should in fact constitute an appropriate strategy to get the economy out of the current recession. Finally, is the matter of what each side considers as its priorities at this difficult time.
Be that as it may, the CBN governor believes that: “Both monetary and fiscal authorities have the same intention to achieve growth. But, the direction through which each wants to achieve it may differ, for as long as you still achieve the growth.”
With due respect to the CBN governor, it is hard to see how moving in opposing directions will lead to the same destination.
We certainly know what the current situation demands. The economy is in recession. Our infrastructure are in terrible shape. The macro-economic environment is hopelessly inclement to industrial activities. Our financial institutions are not lending; when they do, the interest rate is outrageously astronomical. As a result, activities in the real sector have sunk to unimaginably low levels.
The expectation is that the Federal Government will not only embark on massive spending to renew the nation’s infrastructure, but also create the environment for private sector to flourish, of which access to cheap credit constitutes a major part. While the apex bank’s obsession to tame the spiralling inflation currently put at 17.1 per cent is partly understandable, it is hard to see how the measures which not only seek to constrict liquidity but also to raise the cost of borrowing will deliver on the objectives.
Clearly, we recognise that the banks have not been quite helpful when it comes to channelling funds to sectors considered both by the government and the apex bank as priority sector. Indeed, the CBN can hardly be faulted when it argues that past decisions to reduce the MPC rate and CRR, actually benefitted traders, instead of developing the real sector. Or, that traders used bank loans to demand for foreign exchange allocations that were not properly deployed, thereby triggering further pressures on the FOREX market. Or even the more damning charge that the banks would rather refinance their liquidity than attend to proposals on agricultural and new manufacturing projects and others capable of spurring industrial capacity and manufacturing output. But then, so has the fiscal authorities not been faithful in the implementation of the budget.
At this time, the luxury of a fiscal authority working at cross-purposes with the monetary authorities is such that the nation can ill-afford. In any case, what is the idea behind having the CBN governor on the Economic Management Team of the Federal Government if not to jointly proffer broad measures to deal with the problems? At this time, we can only urge parties to go back to the drawing board to come up with clear direction for the economy. Surely, both parties need to get to work on the unacceptably high lending rates. It’s high time they put an end to the discordant tunes.
