Written by Godfrey AKON

CBN cautions FG over rising public debt

The Central Bank of Nigeria, CBN, has cautioned the Federal Government over rising public debt, warning that the country’s borrowing was increasing faster than both domestic and external revenue.

CBN Governor, Godwin Emefile, who issued the warning at a briefing, shortly after the 271st meeting of the apex bank’s Monetary Policy Committee, MPC, in Abuja, stressed the need to tread cautiously in interpreting the debt to Gross Domestic Product, GDP, ratio.

Emefile said the committee also noted the rising burden of debt services and urged fiscal authorities in the country to strongly consider building buffers by not sharing all the proceeds from the federation account to avert a macroeconomic downturn, in the event of an oil price shock.

According to the country’s Debt Management Office, DMO, Nigeria’s public debt as at October 2019 stood at $83, 88 billion with a debt to GDP ratio of 28 per cent.

While calling on government to rationalize fiscal expenditure towards reducing the current excessively high cost of governance, the apex bank further urged government to gradually reduce reliance on oil receipts and focus on revenue diversification through reforms of the tax system.

On the performance of the economy, the CBN Governor noted that the MPC expressed concern over rising inflation, which increased consecutively in the last 4 months as at December 2019 to 11.98 per cent and higher than its target range of 6-9 per cent.

He attributed the problem to monetary and structural factors and called on fiscal authorities to speedily address legacy structural problems giving rise to upward-trending price developments.

Emefile however said “over the last six months, aggregate credit grew by N2.0 trillion and urged the Management of the bank to sustain the current momentum of improved flow of credit to the private sector, while exploring other options with the fiscal authorities to strengthen the legal framework for the enforcement of credit recovery.

“The Committee observed that broad money supply grew by 6.22 per cent (year-to-date) in December 2019. Aggregate Credit (Net) similarly grew to 27.33 per cent in December 2019, from 23.12 per cent in the previous month. This was largely attributed to an increase in Credit to Government, which grew to 92.95 per cent in December 2019, from 72.36 per cent in the previous month.

“Credit to the Private Sector also grew to 13.61 per cent in December 2019, from 12.82 per cent in the previous month. Consequently, sectoral distribution of credit between end-May 2019 and end-December 2019 was as follows: manufacturing (N446.44 billion).

“General Retail and Consumer Loans (N419.02 billion); General Commerce (N248.48 billion); Agriculture, Forestry and Fishing (N160.94 billion); Information and Communications (N156.47 billion); Finance and Insurance (N129.87 billion); Construction (N86.54 billion); and Transportation and Storage (N68.61 billion) among others.”

While making projections for economic outlook in 2020, he said on the domestic side, available data on key macroeconomic indicators show prospects of improved output growth for the economy during the year, adding that the economy is expected to grow by 2.35 per cent.

He said global output is projected to expand moderately in 2020, compared with the previous year, but the overall medium-term outlook for the global economy remains uncertain, due to the persistence of several headwinds.

A summary of the decisions reached by the MPC include: change of the Cash reserve requirement, CRR, from 22.5 to 27.5 per cent; retention of the Monetary Policy Rate, MPR, at 13.5 per cent; as well as retention of the asymmetric corridor of +200/-500 basis points around the MPR and retention of the Liquidity Ratio at 30 per cent.

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