On Tuesday, last week, the Central Bank of Nigeria (CBN) republished the communiqué of the 114th meeting of its Monetary Policy Committee, which held on July 24 and 25 2017.
Whereas the meeting’s communiqué was released in the evening of July 25, 2017, the CBN only recently released the personal statements of members of the committee. When the CBN took the decision about three years ago, to include members’ comments as part of the communiqué from its policy committee’s meetings, it was a clear nod to the demands of a transparent management of monetary policy. Once the markets understand the thinking behind the MPC’s decisions, it was felt, inflation expectations could be better anchored. It matters, therefore, that members’ comments are available as soon as possible after each meeting. The CBN’s decision to publish the most recent such communiqué on the eve of this week’s meeting of the MPC clearly works against much of these goals.
But that is to cavil. For a careful reading of the MPC members’ comments from their penultimate meeting gives much cause for concern. Anyone who has paid attention to the apex bank’s financial statements of late would not have been surprised to learn that the central bank has become a piggy bank to the Federal Government. Still Adedoyin Salami’s comments put a useful context to this. A senior faculty member of the Lagos Business School, and two-term member of the Monetary Policy Committee, Mr. Salami reports “CBN financing of the Federal Government since December 2016” as follows:
• CBN’s claims on Federal Government (FG) at N814 billion is twentyfold higher while the claims of Commercial Banks rose marginally by 0.4 per cent to N4.6 trillion;
• 30.0 percent increase to N454 billion in CBN’s purchase of government T-Bills;
• 5 percent increase in FG Overdrafts to N2.8 trillion; and
• Increase in the ‘mirror account’ from N3 billion at the end 2016 to N1.5 trillion in April 2017.
Put simply, the Central Bank has been glad-handing money to the Federal Government. When it is remembered that one definition of inflation is “too much money chasing after few goods”, one explanation for why domestic prices have remained stubbornly in the upper teens, even as the economy contracted, is at hand. It would seem, nonetheless, that alive to the outcomes of such free use of money in an economy like this, the apex bank then proceeded to sterilise the excess cash by compelling banks to buy short-term debt instruments from it.
Mr. Salami argues that, “the effect of these auctions is to raise the ‘effective’ Cash Reserve Ratio (CRR) beyond the 22.5 per cent sanctioned by the MPC”.
Beyond these technical details, PREMIUM TIMES is more worried by the effects of the CBN’s policies on domestic lending conditions. The CBN has had to raise domestic lending rates in order that its debt instruments remain attractive. And as evidenced by the undersubscription in August of the Federal Government’s N135 billion bond issue, the markets might be demanding higher coupon rates to hold naira-denominated asset.
Not surprisingly, Abdul-Ganiyu Garba, member of the MPC (and currently the Coordinator, Centre for Growth and Development, a think-tank), in his comments indicts “strong growth in money supply in 2015 and 2016” for the significant distortions in “the forex market, the money market, the stock market and domestic prices”. Useful, too, are his insights of how the apex bank may be helping to support domestic business conditions.
Apparently, in the country, today, “those who borrow above N1 billion account for about 81 per cent of the loan portfolio while those borrowing less than or equal to N1 million account for just about 1.3 per cent”.
If, indeed, as Professor Garba contends, the bulk of “small and medium scale enterprises who have highest employment and output elasticities typically borrow under N1 million”, it is easy to see, how the CBN’s poor policy response may currently be the economy’s biggest bane.
Still, PREMIUM TIMES is persuaded that whereas the CBN’s cack-handed management of monetary policy might owe to collective ignorance of members of the MPC, this same ignorance fails, where the charge bothers on criminality. While the statutes governing the apex bank permits it to “grant temporary advances to the Federal Government in respect of temporary deficiency of budget revenue at such rate of interest as the Bank may determine”, the Central Bank of Nigeria Act 2007 is clear that “the amount of such advances outstanding shall not at any time exceed five per cent of the previous year’s actual revenue of the Federal Government”.
A back-of-the-envelope check of the numbers in question would suggest that the CBN long since crossed the latter line.
We at PREMIUM TIMES believe that in a democracy, especially, one as young as ours, with plenty of centrifugal forces to contend with, it is system-threatening for an institution as important as the Central Bank of Nigeria to so wantonly be in violation of its own enabling statute.
We are constrained, therefore, to call on the governor of the Central Bank to resign, and for the appropriate law enforcement agencies to seek to apply penalties as provided by the law for this gratuitous infringement.