A member of the Central Bank of Nigeria’s Monetary Policy Committee (MPC) has expressed concerns about the increasing fiscal deficit of the Nigerian government.
Obadan Idiah, in a personal statement, which was made available at the Monetary Policy Committee meeting on November 25 and 26 in Abuja, described the government’s fiscal deficit which stood at N3.46 trillion between January and September this year as worrisome.
Idiah disclosed that the deficit being incurred by the Nigerian government with its fiscal operations had severe implications for debt accumulation and inflation and to finance the deficit. The Federal Government had issued bonds amounting to N670 billion, thus leaving a net overall deficit of N2.79 trillion which could have been financed through inflationary sources.
Meanwhile, Idiah disclosed that the current efforts of the government to increase domestic revenue by increasing the Value Added Tax from 5% to 7.5% is commendable but the government needed to essentially restructure recurrent expenditure with a view of saving cost.
“Growing fiscal deficits not only lead to debt accumulation and crowding out of the private sector in the financial markets, but it also undermines monetary policy effectiveness,” Idiah said.
However, the CBN Deputy Governor, Economic Policy, Dr Okwu Nnanna, in his own personal statement, stated that lack of fiscal buffers was a major threat to macroeconomic stability, adding that the lack of this fiscal buffers has led to increased unemployment in the country.
“We continue to reiterate our call for massive public work programmes to be executed in conjunction with the private sector particularly. As Nigeria is in a dire need for the rehabilitation of hundreds of its public buildings such as schools and hospitals as well as several roads dotted the country.
“Government should appropriately incentivise the private sector to execute these projects,” Okwu Nnanna said.
CBN Deputy Governor, Financial System Stability, Aisha Ahmad, in her own personal statement disclosed that the Loan to Deposit Ratio had encouraged banks credit to the private sector. She added that with renewed focus on lending by banks, the competitive pressure, would drive market lending rates downwards, thereby enhancing affordability and creating demand for loans.