WorldStage Newsonline-- The Central Bank of Nigeria’s Monetary Policy Committee rose from its two-day meeting on Tuesday raising concerns over increasing depletion of the nation’s foreign reserves and the Excess Crude Accounts (ECA) savings and leakages in revenues.
Briefing the media on the key decisions taken at the meeting, the CBN Governor, Mallam Sanusi Lamido Sanusi, said while the Committee welcomed the sustained stability of the exchange rate and single digit inflation in 2013, it was particularly worried about four key concerns for policy in the short and medium terms.
These include, the depletion of fiscal buffers following the continuing decline in oil revenue, rundown of reserves and depletion excess crude oil savings from about $11.25 billion in December 2012 to a mere $2.5 billion at the end of last year; falling portfolio and Foreign Direct Investment (FDI) inflows; widening gap between the official and the BDC exchange rates; and creeping increase in core inflation.
The MPC jacked up the Cash Reserve Ratio (CRR) on public deposits from 50 per cent to 75 per cent in a strategic move to reduce liquidity in the economy and also to tackle the potential risks posed by the increasing instability of the Naira exchange rate of the Naira against other currencies,
The CBN boss said having appraised the recent developments in the global economic environment as well as fiscal lapses in the domestic economy, the decisions of the Committee to raise the CRR on public sector funds by 50 per cent, retain the MOR at 12 per cent /- 200 basis points and private sector CRR at 12 per cent and the CBN to take immediate step to redress the supply-demand imbalance in the BDC segment while maintaining its focus on anti-money laundering (AML) activities became imperative.
Sanusi, said there was need for the government to take urgent measures to halt the massive withdrawals from savings in the foreign reserves as well as the ECA in order to avert fiscal crisis and the attendant negative implications for the nation’s economy.
On recent developments in the international environment as they relate to economic recovery potentials of many economies that had hitherto stagnated due to fiscal policy reform initiatives in many countries, particularly the US, noted that it was worrisome that even in an era of oil price stability, Nigeria is still drawing down her savings in a manner that continued to threaten Naira exchange stability and impact of monetary policy measure to achieve price stability.
Sanusi said in order to reverse the ugly trend, the Federal Government must take urgent steps to plug leakages in revenue sources, confront the dangerous trend of oil thefts with all the political will that is required and also facilitate the quick passage of the Petroleum Industry Bill.
He said: “On the depletion of fiscal buffers, the Committee decried the continuous fall in revenue from oil despite stable price of oil and production in 2013. Although the Committee acknowledged output losses due to theft and vandalism, this could not wholly explain the magnitude of the shortfall in revenue.
“As a consequence, accretion to external reserves remained low while much of the previous savings have been depleted, thereby undermining the ability of the Central Bank to sustain exchange rate stability. The Committee therefore, urged the fiscal authorities to block revenue leakages and rebuild fiscal savings needed to sustain confidence and preserve the value of the naira”, Sanusi added
While acknowledging the reduction in portfolio inflows driven by the commencement of the QE3 tapering by the Fed, the election transition concerns at the CBN and continued depletion of the ECA, which could dampen investor confidence as well as the reduction of the US stimulus especially, could in addition, trigger capital flow reversals and put greater pressure on the naira exchange rate, Sanusi expressed the Committee’s concern about the widening gap between the official and the BDC exchange rates, noting that this could precipitate speculation and round-tripping.
He said the Committee re-affirmed its commitment to a stable exchange rate regime even as it also urged “the fiscal authority to provide support by reducing fiscal leakages, improving controls around oil revenues and reviewing terms around production sharing agreements with oil companies, while awaiting the passage of the Petroleum Industry Bill (PIB)”
On the implications of the fiscal challenges for the country in the current year, the CBN Governor projected that the 2014 would be a difficult year for a number of reasons, particularly a number of external developments and fiscal entrenchment in the face of dwindling revenues from oil sector.
Sanusi said the way forward out of the fiscal logjam for the country remained taking the steps and adopting a fiscal retrenchment measures, particularly in an election year when expenditures are expected to rise.
He said, “We need to be able to stop the theft, stop the vandalism, stop the leakages and basically save our own money in order to build up reserves. Because oil prices are at an average of $110 and the gap between 2012 and 2013 was less than $2. So there was absolutely no reason why oil revenue should have collapsed from $8bn to less than $2.5bn in one year. So they need to tighten their control.
“They need to check where the money is going. If we can do that, it is within our control that is really the biggest irony here. This is not the case of facing the crisis we faced between 2008 and 2009, this is really a internal thing. It is theft in the Niger Delta, it is leakages in resources, they are all issues within our control as a country. It is a good place to be, where you can actually take charge of the situation. So it should be top on the fiscal priority.
“There is elections coming up in 2015 one of the good things about not having a lot of money in the Excess Crude Account is that there isn’t enough ammunition to spend even if you want to spend, that from a monetary policy perspective there isn’t too much fiscal fire power available to and that is helpful.
“But if we continue having a reversal in inflow and pressure on exchange rate and we are don’t have our savings then ultimately even our commitment to exchange rate stability cannot be effective.”
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