The Monetary Policy Committee has urged the Central Bank of Nigeria to increase its lending to the government via Ways and Means as it believes it will help reflate the economy from its recession.
This is contained in a recent communique from the first Monetary Policy Committee (MPC) meeting concluded on Tuesday, 26th January 2021.
According to the report, the committee considered the broad-based global stimulus packages introduced by the apex banks of different countries to support their economic recovery in the face of the Covid-19 pandemic.
Some of the stimulus packages noted by the MPC include; expanded credit lines, asset purchase programme, corporate bond purchase, additional funding facilities for the financial system, commercial paper purchases, special central bank lending, and increase in Ways and Means limits.
What you need to know
- Recall that Nairametrics reported that the Federal government borrowed a total of N2.8 trillion via Ways and Means from the CBN in 2020 due to the FG’s failure to meet its revenue targets as a result of the impact of the crash in global oil prices and the covid-19 pandemic.
- However, the MPC noted the large stimulus packages deployed by other countries to quicken their growth recovery. Notably, the report stated that Japan provided stimulus packages valued at 66% of its 2019 GDP, UK (45.04%), USA (28.4%), Brazil (27.6%), South Africa (12.6%).
- Also, China deployed 11.5% of its GDP, India (10%), Russia (7.1%) as against Nigeria’s 4%.
- It is worth noting, that the Ways and Means financing was brought to public view in 2016 by the former CBN Governor, Lamido Sanusi after he accused the government of contravening the CBN Act by borrowing more than the required 5% of the prior year revenue.
- While in 2020, the government borrowed 62.2% of its 2019 revenues of N4.5 trillion.
- Also, recall that the budget deficit of N5.6 trillion from the total N13.58 trillion signed by the president is expected to be mainly financed by domestic and foreign borrowings, despite debt stock hitting N32.2 trillion as of September 2020.
The MPC, therefore, urged the Apex Bank to further expand its current stimulus packages to support the fiscal interventions to reflate and boost recovery in the economy.
In order to improve revenue, the MPC also called on the government to take advantage of the take-off of the African Continental Free trade Area (AfCFTA), as it believes it could boost domestic production and generate sizeable revenues for the government.
With the decline in government revenue, due to the crash in oil price and disruption caused by the Covid-19, it is practically impossible for the government to fund its expenditure for the year without borrowings. Hence the need for the CBN’s support loans.