Spotlight Stories
De facto Government: CBN explains why it will keep funding the economy
The Central Bank of Nigeria provided reasons why it will keep spending on development activies such as its intervemtion funds in the agricultural and energy sectors.
The Central Bank of Nigeria provided reasons why it will keep spending on development activities such as its intervention funds in the agricultural and energy sectors. The central bank has carried on as a form of de facto government in recent years particularly in the Covid-19 months, funding several developmental activities and sectors in the economy.
The explanation was provided in its monetary policy communique read out by the CBN Governor, Godwin Emefiele following the end of the monetary policy committee meeting held on Tuesday.
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According to Mr. Emefiele, it will keep spending because the Federal Government is currently incapable of funding development programs because it is facing revenue shortfalls. The CBN reckoned that the economy is faced with likely stagflation (a combination of an economic recession and high inflationary environment) even as Nigerians still have to deal with an increase in fuel and energy prices. It opined that it had to work harder to combat the pressure the price increases will have on Nigerians.
“The Committee was therefore of the view that to abate the pressure, it had no choice but to pursue an expansionary monetary policy using development finance policy tools, targeted at raising output and aggregate supply to moderate the rate of inflation.
“At present, fiscal policy is constrained and so cannot, on its own lift the economy out of contraction or recession given the paucity of funds arising from weak revenue base, current low crude oil prices, lack of fiscal buffers and high burden of debt services.
Explore the Nairametrics Research Website for Economic and Financial Data
“Therefore, monetary policy must continue to provide massive support through its development finance activities to achieve growth in the Nigerian economy. This is the reason MPC will continue to play a dominant role in the achievement of the goals of the Economic Sustainability Program (ESP) through its interventionist role to navigate the country towards a direction that will boost output growth and moderate the level of inflation.”
As part of its plans to inject stimulus into the economy, the central bank committed to a stimulus package of about N1.1 trillion through the government’s Economic Sustainability Plans revealed in June.
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CBN to the rescue: Over the last few months the CBN has been at the forefront of leading developmental activities in the country despite overseeing monetary policy and not fiscal policy.
- The role it is currently playing should be that of the Ministry of Finance, but with government revenue on decline, it believes it has no choice but to come in as a spender of last resort.
- The CBN through its development finance responsibilities has the powers to fund activities in the economy that it believes will create jobs and reduce the inflation rate.
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But more recently, it has been criticized for expanding its balance sheets and playing too big a role in backstopping nearly all major developmental programs of the Buhari administration.
- The CBN is currently spending trillions funding the agricultural sector
- It has also set aside hundreds of billions of naira in funding SME’s through NISRAL and partner microfinance banks
- There is also several targeted private sector spending in the areas of power, healthcare, real estate, entertainment etc.
Currencies
Naira falls at black market as dollar supply drops
At the black market, the Naira depreciated against the dollar to close at N465/$1 on Wednesday.
Forex turnover drops by 47.5% as Nigeria’s exchange rate at the NAFEX window appreciated against the dollar to close at N385.67/$1 during intra-day trading on Wednesday, October 28.
Also, the naira depreciated against the dollar, closing at N465/$1 at the parallel market on Wednesday, October 28, 2020, as businesses open up after relaxation of the curfew initially imposed to curtail the widespread violence that followed the hijacked #EndSARS protests.
This is also as businesses shut down due to the outbreak of violence in Lagos and some parts of the country during the protests against the special anti-robbery unit (SARS) and police brutality by the Nigerian youths.
Parallel market: According to information from Abokifx – a prominent FX tracking website, at the black market where forex is traded unofficially, the Naira depreciated against the dollar to close at N465/$1 on Wednesday. This represents a N2 drop when compared to the N463/$1 that it exchanged for on Tuesday, October 27.
- The local currency had strengthened by about 7.8% within the one week in September at the black market, as the CBN introduced some measures targeted at exporters and importers, in order to try to boost the supply of dollars in the foreign exchange market, and reduce the high demand for forex by traders.
- The CBN has sold over $500 million to BDCs since they resumed forex sales on Monday, September 7, 2020. This was expected to inject more liquidity to the retail end of the foreign exchange market and discourage hoarding and speculation.
- However, the exchange rate against the dollar has remained volatile after the initial gains made, following the CBN’s resumption of sales of dollars to the BDCs.
- The President of the Association of Bureau De Change Operators, Aminu Gwadebe, said he expects the impact of the extra liquidity in the market to be gradual.
- Despite the drop in speculative buying of foreign exchange, the huge demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.
NAFEX: The Naira appreciated against the dollar at the Investors and Exporters (I&E) window on Wednesday, closing at N385.67/$1.
- This represents a 33 kobo gain when compared to the N386/$1 that it exchanged for on Tuesday, October 27.
- The opening indicative rate was N385.89 to a dollar on Wednesday. This represents a 97 kobo drop when compared to the N384.92 that was recorded on Tuesday.
- The N393.42 to a dollar is the highest rate during intraday trading before it closed at N385.67 to a dollar. It also sold for as low as N380/$1 during intraday trading.
Forex turnover: Forex turnover at the Investor and Exporters (I&E) window declined by 47.5% on Wednesday, October 28, 2020.
- According to the data tracked by Nairametrics from FMDQ, forex turnover dropped from $138.60 million on Tuesday, October 27, 2020, to $73.01 million on Wednesday, October 28, 2020.
- The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate their funds.
- The drop in dollar supply after the previous trading day’s huge increase reinforces the volatility of the foreign exchange market. The supply of dollars has been on a decline for months due to low oil prices and the absence of foreign capital inflow into the country.
- As part of the measure to check forex abuse and check illegal transactions, the CBN last month directed the freezing of accounts of about 38 companies.
- The average daily forex sale for last week was about $169.93 million, which represents a huge increase from the $34.5 million that was recorded the previous week.
- Total forex trading at the NAFEX window in the month of September was about $1.98 billion, compared to $843.97 million in August.
- The exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand, and a shaky economy that has been hit by the coronavirus pandemic.
Coronavirus
COVID-19 Update in Nigeria
On the 28th of October 2020, 147 new confirmed cases and 4 deaths were recorded in Nigeria
The spread of novel Corona Virus Disease (COVID-19) in Nigeria continues to record significant increases as the latest statistics provided by the Nigeria Centre for Disease Control reveal Nigeria now has 62,371 confirmed cases.
On the 28th of October 2020, 147 new confirmed cases and 4 deaths were recorded in Nigeria, having carried out a total daily test of 3,270 samples across the country.
To date, 62,371 cases have been confirmed, 58,095 cases have been discharged and 1,139 deaths have been recorded in 36 states and the Federal Capital Territory. A total of 617,750 tests have been carried out as of October 28th, 2020 compared to 614,480 tests a day earlier.
COVID-19 Case Updates- 28th October 2020,
- Total Number of Cases – 62,371
- Total Number Discharged – 58,095
- Total Deaths – 1,1139
- Total Tests Carried out – 617,750
According to the NCDC, the 147 new cases were reported from 12 states- Lagos (82), FCT (20), Rivers (9), Kaduna (8), Plateau (8), Benue (5), Edo (3), Kano (3), Nasarawa (3), Taraba (3), Ogun (2), Bauchi (1).
Meanwhile, the latest numbers bring Lagos state total confirmed cases to 21,017, followed by Abuja (6,028), Plateau (3,622), Oyo (3,433), Rivers (2,790), Edo (2,657), Kaduna (2,633), Ogun (2,016), Delta (1,813), Kano (1,746), Ondo (1,666), Enugu (1,314), Kwara (1,069), Ebonyi (1,049), Katsina (952), Osun (923), Abia (898), Gombe (883). Borno (745), and Bauchi (711).
Imo State has recorded 616 cases, Benue (491), Nasarawa (482), Bayelsa (403), Ekiti (332), Jigawa (325), Akwa Ibom (295), Anambra (277), Niger (274), Adamawa (257), Sokoto (165), Taraba (143), Kebbi (93), Cross River (87), Yobe (82), Zamfara (79), while Kogi state has recorded 5 cases only.
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Lock Down and Curfew
In a move to combat the spread of the pandemic disease, President Muhammadu Buhari directed the cessation of all movements in Lagos and the FCT for an initial period of 14 days, which took effect from 11 pm on Monday, 30th March 2020.
The movement restriction, which was extended by another two-weeks period, has been partially put on hold with some businesses commencing operations from May 4. On April 27th, 2020, Nigeria’s President, Muhammadu Buhari declared an overnight curfew from 8 pm to 6 am across the country, as part of new measures to contain the spread of the COVID-19. This comes along with the phased and gradual easing of lockdown measures in FCT, Lagos, and Ogun States, which took effect from Saturday, 2nd May 2020, at 9 am.
On Monday, 29th June 2020 the federal government extended the second phase of the eased lockdown by 4 weeks and approved interstate movement outside curfew hours with effect from July 1, 2020. Also, on Monday 27th July 2020, the federal government extended the second phase of eased lockdown by an additional one week.
On Thursday, 6th August 2020 the federal government through the secretary to the Government of the Federation (SGF) and Chairman of the Presidential Task Force (PTF) on COVID-19 announced the extension of the second phase of eased lockdown by another four (4) weeks.
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COVID-19 Update in Nigeria
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