Monetary Policy Committee wants oil money shared to states curtailed

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) on Wednesday urged the federal government to check its distribution of oil revenue to states.

Rather, the committee said the government should develop a savings culture to provide the needed stability for the economy against future oil price-related shocks.

The committee said the bulk of oil money shared to states was growing compared to last year.

The observations were contained in the 117th communique of the re-constituted MPC issued at the end of its first meeting in 2018 in Abuja.

CBN governor, Godwin Emefiele, who read the communique, said the committee lamented recent increasing monetization of oil proceeds as evident in the growing Federation Accounts Allocation Committee distribution to states, relative to the 2017 level of disbursements.

“However, the Monetary Policy Committee observed increasing monetization of oil proceeds as evident in the growing FAAC distribution, relative to the 2017 level of disbursements,” the committee said.

“The Committee urged the Government to initiate strong stabilization programmes and to freeze the growth in its aggregate expenditure and FAAC distributions in order to create savings; needed to stabilize the economy against future oil price related shocks.”

The Committee said the economy grew overall by 0.83 per cent in 2017, with the main drivers of real gross domestic products growth from agriculture industry and trade.

Besides, it said non-oil real GDP grew by 1.45 per cent in the fourth quarter of 2017, compared with a contraction of 0.76 per cent in third quarter of 2017, indicating the economy was gradually returning to a path of sustainable positive growth.

The Committee also noted the continuous positive outlook based on the manufacturing, and non-manufacturing purchasing managers’ index (PMI) at 56.7 and 57.2 index points, respectively, in March 2018.

Mr Emefiele said the return of growth in the services sector also showed a sustained recovery of the country’s economy from recession.

He assured the CBN’s determination to continue providing credit at single digits interest rate to some strategic sectors of the economy to sustain growth in the country, particularly to the small and medium term enterprises (SMEs), agricultural sector and core manufacturing sectors.

Besides, he said the CBN was willing to provide some liquidity to help settle over N2.7 trillion contractor debt to reduce the huge non-performing loans to allow banks to continue to play their role in supporting credit delivery in the Nigerian economy.

“As government pays off its huge contractor debts, a sizeable portion of these non-performing loans will be addressed by reducing its domestic debt profile and increasing the liquidity of the banking system,” the communique noted.

The MPC expressed satisfaction with the implementation of the Nigerian Economic Recovery and Growth Plan, to stimulate economic recovery.

In its forecast of key macroeconomic indicators, the MPC said it observed a positive outlook for the Nigerian economy in 2018, predicated on four planks: quick passage and effective implementation of the 2018 budget, improved security, foreign exchange market stability as well as favourable crude oil prices.

The Committee however noted potential threats capable of impacting the economy to include 2019 election-related spending, weak backdrop of tax revenue efforts, herdsmen related violence and rising yields in the advanced economies.

However, members urged the National Assembly to quickly pass the 2018 Appropriation Bill to help keep fiscal policy on track and deliver the reliefs urgently needed to create employment and growth for Nigerians.

In its resolutions, the MPC unanimously voted to retain the monetary policy rate (MPR), otherwise called lending rate 14 per cent, the 10th consecutive time since 2016.

Cash reserve ratio (CRR), which is the minimum fund the CBN can allow a commercial bank to hold in its reserve, was kept at 22.5 per cent.

Equally, liquidity ratio was left at 30per cent and asymmetric corridor at +200 and -500 basis points around the MPR.

Weighing its decision, the Committee said it believed further tightening of the policy rates at this time would strengthen the impact of monetary policy on inflation with complementary positive effects on capital flows and exchange rate stability.

On the other hand, some members of the Committee argued against reducing the policy rate, saying this would strengthen the outlook for growth by stimulating domestic aggregate demand through reduced cost of borrowing.

But, this may lead to a rise in consumer prices, generating exchange rate pressures on the currency in the process.

The Committee believes that effective implementation of the Economic Recovery and Growth Plan (ERGP) by the Federal Government and quick passage of the 2018 budget will continue to enhance aggregate demand and confidence in the Nigerian economy.

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