Economic Crisis: Speed up budget implementation, CBN tells FG

The Central Bank of Nigeria (CBN) on Tuesday reviewed the state of the country’s finan­cial system and the economy and appealed to the Federal Government to speed up the implementation of the 2016 Budget to stimulate eco­nomic activities and growth.
It expressed concern over the galloping inflation­ary trend which has risen to 16.5 per cent and resolved to tackle price stability and tame inflation.
Some of the structural causes of inflation, accord­ing to the CBN are high cost of electricity, high transport fare, high cost of inputs, low industrial activities as well as higher prices of both do­mestic and imported food products.

The CBN Governor, Mr. Godwin Emefiele, who briefed journalists on the outcome of the two-day Monetary Policy Committee (MPC) meeting held at the bank’s Corporate Headquarters, Abuja, lamented that the Nigerian economy is still saddled with the effects of the shocks of the first quarter of 2016 which led to a contraction in output arising from energy shortages, high electricity tariffs, price hikes, scarcity of foreign exchange and depressed consumer demand.

The CBN Governor main­tained that most of the factors inhibiting and undermining economic growth were out­side the control of the Mone­tary Policy.
While noting particular­ly the non-implementation of the 2016 budget, he said the MPC further noted the pro­longed non-payment of sal­aries, a development which has affected aggregate de­mand and worsened growth prospects.
According to him, “Whereas the influence and persistence of some of the fac­tors waned in the second quar­ter, it is unlikely that the econ­omy rebounded strongly in the quarter as setbacks in the en­ergy sector continued owing mainly to vandalism of oil in­stallations.

“In addition, the imple­mentation of the 2016 Budg­et in the second quarter re­mained slower than expected in the second quarter. The Committee noted that most of the conditions undermin­ing domestic output growth were outside the direct pur­view of monetary policy.
“The MPC recognised the weak macroeconomic envi­ronment, as reflected particu­larly in increasing inflation­ary pressure and contraction in real output growth. In view of this, the MPC underscored the imperative of coordinated action, anchored by fiscal pol­icy, to initiate recovery at the earliest time.
“The members called on the Federal Government to

 fast-track the implementa­tion of the 2016 Budget in or­der to stimulate economic ac­tivities to bridge the output gap and create employment. In the same vein, the MPC expressed concern over non-payment of salaries in some states and urged action in that direction to help stimulate aggregate de­mand,” Emefiele said.
The CBN governor said in view of the present economic realities that the MPC mem­bers were confronted with the options of fighting inflation or jump-starting growth, but the majority favoured pursu­ing price stability and flexi­ble foreign exchange system which outcome would stimu­late economic growth.
In opting to fight infla­tion, CBN canvassed urgent diversification of the econo­my from oil to manufactur­ing, agriculture and services and called on all stakehold­ers to increase investment in growth stimulating and high employment elasticity sectors to lift the economy out of its current phase.
The apex bank pledged to continue to utilise avenues and instruments available to it in supporting investments in agriculture, solid miner­als, manufacturing to stimu­late growth.
In fighting inflation and further consolidating on its 40-day-old flexible foreign ex­change policy guidelines, the CBN resolved to increase the Monetary Policy Ratio (MPR) by 200 basis points from 12.00 to 14 per cent; retain the Cash Reserve Ratio (CRR) at 22.50 per cent; retain the Liquidity Ratio at 30.00 per cent; and re­tain the Asymmetric Window at +200 and -500 basis points around the MPR.
Further, the Commit­tee enjoined Deposit Mon­ey Banks (DMBs) to partner with government and the bank by redirecting credit from low employment generating sec­tors to those capable of sup­porting growth, reducing unemployment and improving citizens’ standards of living.

He said: “Members agreed that the economy was passing through a difficult phase, deal­ing with critical supply gaps and underscored the impera­tive of carefully navigating the policy space in order to engen­der growth and ensure price stability.”
Emefiele who also re­viewed the flexible foreign ex­change policy, expressed the confidence that it would gen­erate the expected stability of the Naira.
On the state of Nigerian banks, Emefiele said that none of them is in distress , explain­ing that the removal of man­agement of any bank does not amount to the bank being in distress but to ensure the secu­rity of depositors’ funds.
He maintained that the Nigerian banking system still remains strong just as he said that the exclusion of 41 items from foreign exchange access is achieving the desired result.