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Monday, December 5, 2022

CBN Pushes Back Against NESG, says its Policies Are to Stabilise Economy

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The Central Bank of Nigeria (CBN), says like other Central Banks across the world it has had to embark on extraordinary measures in order to stabilize the Nigerian economy from an extraordinary shock.

The CBN was responding to a recent press release titled “Matters of Urgent Attention” by the Nigerian Economic Summit Group (NESG), which called into question some of the measures taken by the CBN to support the stability of the financial system and enable faster recovery of the Nigerian economy, following the negative impact of the COVID-19 pandemic.

The CBN noted that in response to the Covid-19 pandemic across the globe, central banks have embarked on measures aimed at stabilizing their respective economies by reducing lending rates, which declined to negative territory in several advanced economies, in addition to increasing the scale of their asset purchase programmes.

For instance, after reducing its Federal Funds rate to 0 percent, the US Federal Reserve Bank implemented a huge securities purchase programme, which included purchase of corporate bonds (including those below investment grades).

The Reserve Bank also provided credit facilities to non-bank institutions which included, money market funds and corporations.

The balance sheet of the US Federal Reserve in support of these activities increased by over $3 trillion, while the European Central Bank expanded its balance sheet by over $1 trillion. Furthermore, the Bank of England in an unusual move gave an open check to the UK Government in order to fund its recovery efforts.

“We took steps to increase the flow of credit to critical sectors of the economy, in order to enable faster recovery of the economy. We also sought to prevent the economic crisis from spilling into a major financial crisis,” the CBN said in a statement signed by Isaac Okorafor, Director Corporate Communications.

Some of the actions include;

  1. A 1-year extension of a moratorium on principal repayments for CBN intervention facilities;
  2. Strengthening of the Loan to Deposit ratio policy, which has resulted in a significant rise in loans provided by financial institutions to banking customers. Loans given to the private sector, have risen by over 21 percent over the past year.

iii. Creation of NGN 50 billion target credit facility for affected households and small and medium enterprises through the NIRSAL Microfinance Bank;

  1. Creation of a NGN100 billion intervention fund in loans to pharmaceutical companies and healthcare practitioners intending to expand and strengthen the capacity of our healthcare institutions;
  2. Creation of a research fund, which is designed to support the development of vaccines in Nigeria.
  3. A N1 trillion facility in loans to boost local manufacturing and production across critical sectors;

vii. Regulatory Forbearance was granted to banks to restructure loans given to sectors that were severally affected by the pandemic

viii. Mobilization of key stakeholders in the Nigerian economy, which led to the provision of over N23bn in relief materials to affected households, and the setup of 39 isolation centers across the country.

The effect of these measures which included provision of palliatives to individuals affected by the pandemic, increase in access to credit to critical sectors of the economy that are either high employers of labor or have the ability to create jobs at a fast pace, helped to contain a significant decline in GDP growth in the 2nd quarter of the year, according to the CBN.

Analysts expected GDP growth to decline by 7.4 percent but the impact of the measures by the monetary and fiscal authorities helped to reduce this decline to 6.1 percent, the CBN said.

This decline was less severe than the decline experienced in other economies such as the United States, South Africa, and India which saw significant declines in growth by 32 percent, 52 percent and 23 percent respectively.

The CBN also said that despite of the cordial and open relations between both organizations, the NESG could have raised its allegations directly with it but never did.

“Instead they chose to release a Press Statement, having leaked its content to a leading Business Newspaper in the country.”

On some specifics of the NESG’s accusations the CBN rebuttal can be read more broadly here.

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