Less Money to Circulate in 2014

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THE Central Bank of Nigeria has announced a tight monetary policy for the 2014 fiscal year. This was in a bid to check the excessive pressure on prices as the country inches towards the 2015 general elections. Sanusi Lamido Sanusi, governor, CBN, said the decision was taken by the Monetary Policy Committee, MPC, of the bank. The 12-member committee met on November 18 and 19 at the CBN headquarters to review the global and domestic economic environment from January to October 2013. They committee also re-assessed the short-to medium-term risks to inflation, domestic output, financial stability and the outlook for the rest of the year.

Sanusi said that having considered the progress so far made this year in reducing inflation, the committee felt that the outlook for 2014 would portend some challenges that could lead to further tightening in monetary conditions. He said that the committeenoted the positive impact of monetary policy in engendering a stable exchange rate regime and attracting portfolio investment, thus driving the strong recovery of asset prices on the Nigerian Stock Exchange, NSE. “The outlook for 2014, however, portends some potential headwinds that may lead to further tightening in monetary conditions. It is also the year in which election spending is likely to take place domestically, thus bringing more pressure to bear from the fiscal side.

“The MPC is of the view that we are not yet at the end of the tightening cycle and may need to tighten further in response to these eventualities next year. The committee, also noted that while the Federal Government’s overall spending in 2013 had not been significantly higher than in 2012, oil revenues had continued to decline in spite of the relative stability in oil price and output and as a result of this declining oil revenue, the committee said the excess crude savings had fallen from about $11.5bn at the end of 2012 to less than $5bn on November 14, 2013 while external reserves remained in excess of $45bn only because of a massive inflow in portfolio funds.”

According to him, the implication of this is that financial markets are extremely fragile and susceptible to external shocks adding that the MPC is calling on the fiscal authorities to rebuild buffers in the excess crude account, but this can be done by blocking fiscal leakages in the oil sector and increasing oil revenues. He said the major risk on the fiscal side at present is not one of escalation of spending but the loss of revenue from oil exports. He added that the committee also adopted an inflation target of between six percent and nine percent for 2014.

Sanusi said that since the Economic Community of West African States, ECOWAS, heads of state set a five percent target at the Convergence Council, the MPC wanted to ensure that Nigeria moved firmly into being a low-inflation environment in the medium term. However, the MPC recognised the high cost of rapid adjustment and plans to make the transition gradually,” he added. On the country’s MPR, he said the committee decided to leave the rate unchanged at 12 percent.

Banks Face Liquidity Challenges

MORE banks have sought for alternative sources of earnings following the directive by the Central Bank of Nigeria, CBN, to increase their Cash Reserve Ratio, CRR, to 50 percent last July. The CRR for public sector deposit was raised from 12 percent to 50 percent in order to reduce the amount banks have for lending. A CBN report shows that banks borrowed a daily average of N123.9bn from the CBN in August up from N34.5bn in the previous month, representing an increase of 259 percent.

Bodo
Bodo

Although the banks stayed resilient despite the liquidity issue, the nine-month 2013 results of the banks showed that interest income in most of the banks remained steady while revenues and profitability were affected by the directive. For instance, the nine-month 2013 result of United Bank for Africa Plc, showed that profit before tax rose marginally from N42bn to N43bn. First City Monument Bank Plc also recorded a N2bn increase in profit before tax, from N12bn to N14bn.

Investigations showed that some banks were also lining up to finance power projects following the power assets privatisation. The UBA has spent $700m in financing power assets this year and plans to put $2bn into power projects in the next three years. Fidelity Bank, Access Bank and Guaranty Trust Bank have raised a total of $1bn in Eurobonds for the power sector and oil and gas lending.

George Bodo, an analyst at Ecobank, said the directive by the CBN would continue to have a negative impact on banks’ ability to create earning assets, adding that he expected the fourth quarter bank earnings to decline by 10 percent. He noted that the next phase would be consumer lending and that Nigerian banks would have to start consumer lending because their current lending model is not sustainable.

World Bank Pledges Support for Nigeria’s Data System

Gaugris
Gaugris

THE World Bank is working with the Federal Government on how to have a more strategic support for the nation’s statistical production processes. This would help to enhance data quality as well as ensure its reliability. The World Bank support is expected to commence next year. Alain Gaugris, its senior statistician, confirmed the development during the celebration of the 2013 African Statistics Day which was held at the headquarters of the National Bureau of Statistics. It was aimed at helping the people appreciate the importance of statistics to economic development.

He said that the overall objective of the project was to enable the Nigerian statistical system to produce the quality data it needed to support national development and pointed out that the World Bank was actively involved in statistical development in Nigeria. He said: “We all know the complexity of the Nigerian statistical system, inherent to the federal structure of the country. There are challenges ahead, but we are all here to address them, for an improved statistical system. The World Bank strongly supports this effort and remains committed to supporting statistical development in Nigeria.

Compiled by Chinwe Okafor

— Dec. 2, 2013 @ 01:00 GMT

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