Fitch, a credit ratings international organisation has disclosed that the Central bank of Nigeria (CBN) under President Muhammadu Buhari might drag the Nigerian economy in crisis due to mismatch in economic policy management.
In the latest report released by Fitch, titled Nigeria’s Unconventional Policies Aggravate External Vulnerability, the organisation stated that the CBN’s recent attempt to boost economic activity through giving incentives to banks’ lending had clashed with the goal of maintaining a stable exchange rate, and this is not good for the economy.
Uncoordinated policies: Fitch noted that the CBN’s policy moves to reconcile competing goals through unconventional macroeconomic management and weaknesses in policy settings were raising medium-term vulnerabilities to shocks, and this could expose the economy more to falling oil prices or disruptions to hydrocarbon production.
- According to the report, tight management of domestic liquidity had been the key pillar of Nigeria’s exchange-rate policy in recent years.
- However, the recent measures to boost lending have contributed to a temporary loosening of domestic financing conditions. This has combined with falling oil prices and deteriorating investor sentiment towards emerging markets to put pressure on the naira.
- Specifically, one of the major policies cited by Fitch is the policy implemented in July, which includes a requirement for banks to have a loans-to-deposits ratio of at least 60% by the end of September and tighter restrictions on the amount of remunerable deposits that banks can park at the Central Bank.
Macroeconomic Pressures: Also, it was stated that exchange rate movement pressured the CBN to resume its liquidity tightening operations in August by auctioning Open Market Operations (OMO) bills, and to increase the supply of foreign currency, releasing about $800 million from its foreign-currency reserves between mid-July and mid-August.
- According to Fitch, these moves by the CBN have contributed to a rebound in domestic interest rates and limited the depreciation of the naira on the Investors’ and Exporters’ FX Window by 1% since the end of June.
- Hence, Fitch noted that the competing goals of preserving naira stability and supporting Nigeria’s fragile recovery were pushing the CBN towards increasingly complex policy measures, with a risk of aggravating external vulnerability or causing macroeconomic distortions.
- Fitch stated that the CBN’s policy of auctioning OMO bills to non-residents had led to a rapid build-up of short-term external liabilities with non-resident holdings of these bills amounting to $15.8 billion (4% of GDP) at end-April, equivalent to a third of reserves. This generates meaningful rollover risks, which could necessitate persistently high-interest rates, holding back growth and increasing the government’s debt-servicing costs
FOREX restriction on milk and food items: Fitch identified CBN’s recent move to intensify restrictions on FOREX access for imports that were imposed in 2015. While the President of Nigeria, Muhammadu Buhari, recently called on the CBN to end FOREX for milk importers, the President has also announced restriction of FX access for all food imports, but according to Fitch, the scope, modalities and timeline of such measures remain unclear.
Also according to Fitch, FX restrictions are unlikely to foster expansion in the domestic food supply, as Nigeria’s agricultural and food sectors suffer from deep-seated challenges from infrastructure gaps, communal conflicts, insecurity and weather hazards. Instead, these restrictions could push more traders towards the informal economy and compound inflationary pressures.
On Nigeria’s inflation, Fitch noted that Nigeria’s Inflation at about 11% already raises the risk of an overvaluation of the real effective exchange rate, which could put more pressure on the naira and increase the risk of a sharp adjustment following an oil price shock. Withdrawal of portfolio investors would aggravate the potential balance of payment pressures.
Gov. Makinde presents N266 billion budget to Oyo State House of Assembly
Governor Seyi Makinde has presented a ₦266.64billion budget proposal to the Oyo State House of Assembly.
The Oyo State Governor, Seyi Makinde, presented the Budget Proposal for the 2021 Fiscal Year to the Oyo State House of Assembly. The total budgeted sum is ₦266.64billion, with education expected to receive N56.35billion – 21% of the budget and a rise from N12 billion budgeted in 2019.
This was disclosed by Governor Makinde in a social media post on Monday.
It was my honour to present the Oyo State Budget Proposal for the 2021 Fiscal Year to the Oyo State House of Assembly, today. This Budget of Continued Consolidation was prepared with input from stakeholders in all seven geopolitical zones of our state. pic.twitter.com/6ys0XFOgh1
— Seyi Makinde (@seyiamakinde) November 23, 2020
According to NAN, Mr. Makinde disclosed on social media that the ‘Budget of Continued Consolidation’ was prepared with input from stakeholders in all seven geopolitical zones of the state.
“The total budgeted sum is ₦266.64billion The Recurrent Expenditure is ₦136.26billion, while the Capital Expenditure is ₦130.38billion. We are again, aiming for at least 70% implementation of the budget,” he said.
The News Agency of Nigeria also disclosed that infrastructure spending in the budget would be N46.06billion – representing 17.27% of the total budget and an increase of N33.66 billion over that of last year.
Other sectors include Agriculture which represents 3.6% valued at N9.58billion and Healthcare taking 4.9% of the budget with an N13.29billion allocation.
The Governor disclosed that Oyo has reduced its infrastructure deficit and made improvements in the areas of healthcare, education, and others.
“We have been able to lower our infrastructural deficit, make improvements in healthcare delivery, improve the quality of education, and achieve milestones in our security systems,” he said.
He also added that the state had recorded a 26% increase in IGR at N25.6 billion and hopes to increase IGR to over N100 billion for the 2021 budget.
“As of September, we had recorded an IGR of N25.6 billion. And using the half-year figures, it represented a 26.4% increase in IGR year-on-year. Oyo State’s IGR is presently about 32% of actual aggregate revenue.
“We still have not achieved a total dependence on the state’s income outside of the federal allocation to fund the budget. Slowly, but surely, we are getting there.
“For the 2021 budget, our plan is to increase our annual IGR to N102.82billion. We hope to achieve this by widening the tax net to bring in more taxpayers into the system,” he added.
Restructuting: Plans must pass through legal process from the National Assembly – Tambuwal
Tambuwal has insisted that plans to restructure Nigeria and the Constitution must pass through due process from the National Assembly.
The Governor of Sokoto State and Former House of Reps Speaker, Aminu Tambuwal, has said that any plan to restructure Nigeria and the Constitution must pass through legal due process from the National Assembly.
Tambuwal disclosed this at a plenary session of the 26th Nigerian Economic Summit, titled: “Building partnerships for resilience” in Abuja on Monday.
Tambuwal warned that Nigeria must learn from mistakes 0f 2015 when the last attempt to amend Nigeria’s constitution was rejected after the first reading.
He added that any plan to restructure must be done after amending the constitution, which must pass through the assembly.
“As it were at the moment, whatever you are going to do about the constitution, has been prescribed by the constitution and how you are going to do it.
“The constitution has prescribed how a word in that constitution is going to be amended.
“Except of course we are saying we are going to jettison the National Assembly and the State Assemblies in getting it done, which is not possible,” he said.
“So you cannot go outside of the constitution to amend the constitution. We better come to terms with this realization and to come together and agree on how best we can work together to achieve what the nation desires,” he added.
What you should know
The agitations from the October protests in Nigeria have revived talks about restructuring in Nigeria. Earlier this month, the Governors of Ekiti and Kaduna State, Kayode Fayemi and Nasi El-Rufai argued that restructuring was a means to end Nigeria’s economic troubles.
“In essence, our desire to build a more perfect union should be anchored on the principle of devolution of powers – that is, re-allocation of powers and resources to the country’s federating units.
“The reasons for this are not far-fetched. First, long years of military rule have produced an over-concentration of powers and resources at the centre to the detriment of the states. Two, the 1999 Constitution, as has been argued by several observers, was hurriedly put together by the departing military authority and was not a product of sufficient inclusiveness.
“All points considered, the fiscal burden of maintaining a largely inefficient and over-bloated bureaucracy is a metaphor for shooting oneself on the foot,” Fayemi said.
28 million merchants to be granted crypto usage on PayPal
PayPal CEO, Mr. Schulman recently hinted the company will allow the usage of crypto funding for 28 million merchants.
PayPal CEO, Mr. Schulman, recently hinted that the company would allow the usage of crypto funding for the 28 million merchants on its payments platform.
In a report credited to CNBC, the CEO of the payment juggernaut company elaborated further by saying, “Early next year, we’re going to allow cryptocurrencies to be a Funding Source for any transaction happening on all 28 million of our merchants and that will significantly bolster the utility of cryptocurrencies.”
The Chief Executive also disclosed that it was just a matter of time for digital currency to replace the old traditional forms of fiat currencies (paper money).
“As paper money slowly dissipates and disappears from how people are using transactions; Central banks, especially on the retail side, will need to replace paper money with forms of digital fiat currency.”
"As paper money slowly dissipates and disappears from how people are using transactions, central banks especially on the retail side will need to replace paper money with forms of digital fiat currency," says @PayPal CEO Dan Schulman. pic.twitter.com/pLuvc2RxPY
— Squawk Box (@SquawkCNBC) November 23, 2020
What this means
About a month ago, Nairametrics reported on PayPal Holdings Inc’s announcement that it would provide its users the opportunity to buy, hold, and sell cryptos directly from their PayPal accounts by early 2021.
It also hinted at a strategy to significantly boost its crypto’s utility capability, by making it readily available as a funding source for purchases with its 28 million clients globally.
In a press statement seen by Nairametrics, Dan Schulman, President and CEO, PayPal, gave key insights on why the global payment company was going crypto:
“The shift to digital forms of currencies is inevitable, bringing with it clear advantages in terms of financial inclusion and access, efficiency, speed, resilience of the payment system, and the ability for governments to disburse funds to citizens quickly.”