By Henry Boyo

THE CBN Governor, Godwin Emefiele, reportedly, laid out to journalists, the outline and objectives, of the proposed five years (2019-2024) Policy Thrust of the CBN, in a detailed statement, on Monday, June 24, 2019 in Abuja.


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Emefiele announced that his team would work closely with the Fiscal Authorities (Government) to ensure macroeconomic stability and promote more economic inclusiveness, with double-digit growth rates, single-digit inflation rates, and wider access to finance, for more businesses, so as to instigate economic renaissance with more employment opportunities, particularly, amongst Small and Medium Scale Enterprises.

Furthermore, Emefiele also explained that the current capital base of banks is no longer adequate to expand credit to the real sector, principally, because of the massive Naira devaluation in the last 14 years or so. Consequently, the CBN Governor gave notice that banks would be required to increase their capital base above the present N24bn, which incidentally was equivalent to $195m (N127-N130=$1) in 2004 but, sadly, is now barely $75m! Incidentally, Emefiele gave no coherent reason for the abysmal Naira rate, particularly when reserves have significantly, evidently exceeded $4bn which had supported an exchange rate below N90=$1 before the return to Civil rule in 1999.

Hereafter, the possibility of achieving the desired level of macroeconomic stability, vibrant and inclusive economic growth expected by Emefiele, will be briefly examined against the backdrop of the related existing threats and challenges.

Notably, however, international best practice inflation rates below three per cent, have regrettably, remained elusive in Nigeria’s economy for over two decades. In fact, the lowest recorded inflation rate of about six per cent, prevailed briefly between 1999-2000, while, Nigeria’s annual average inflation rate has, inexplicably, remained stuck above 10 per cent, since 1999! In other words, all income earners has steadfastly shed over 50 per cent of their purchasing power every five years or so, to significantly deflate the level of consumer demand, that is required to drive increasing production and investment with more job opportunities and taxable corporate income.

Instructively, however, lower consumer demand has never been a motivator for manufacturers and investors to expand their businesses and increase employment. Consequently, the failure, so far, to sustain macroeconomic stability and foster more inclusive economic growth in Nigeria, is largely attributable to CBN’s inability to induce favourable inflation rates below three per cent, which is witnessed, as standard practice in more successful economies elsewhere!

Notably, however, the CBN’s prime mandate, in its 2007 enabling Act, is clearly price stability, i.e. relatively low and stable consumer prices which will sustain the purchasing power of all income earners and support vibrant consumer demand, which in turn, would encourage, manufacturers and service providers to expand their businesses, while increasing job opportunities in the process. Consequently, the over 11 per cent annual inflation rates which have subsisted for several years, in place of a more benign rate below 3%, has expectedly wrecked havoc on purchasing power and consumer demand with a serious deflationary collateral on production, employment and inclusive economic growth.

Arguably, Nigeria’s recent ignoble identity, as the World’s Poverty Capital, is primarily the product of CBN’s abysmal failure to sustain its prime mandate of price stability!!

Evidently, consumers recognise the pain and chagrin caused by the diminishing purchasing power of their incomes, because of the unstoppable spiral of rising prices; however, more Nigerians may probably, not easily recognise the extensive debilitating impact of higher rates of inflation on macroeconomic stability, employment and inclusive growth! Instructively, since it is irrational for anyone to lend money at rates which are lower than the inflation rate, it is therefore inevitable that the cost of borrowing or rate of interest will always remain higher than the inflation rate!

Consequently, double-digit inflation rates, will compulsively, induce higher double-digit interest rates, which will in turn, drive higher inflation rates that will further restrain consumer demand and reduce output of goods and services in an unending sequence, unless the primary villain of inflation (i.e. excess money supply) is arrested!

Nevertheless, if the real driver of inflation, which is undeniably contracting consumer demand and output, subsisting simultaneously, with the challenges of excess cash supply and extended credit capacity in Nigeria’s money market, it is not yet clear how CBN intends to bring down inflation to best practice rates below three per cent.

Sadly, CBN management and its Monetary Policy Committee have remained in denial that the  PRIMARY  driver of inflation, is the additional bloated Naira sums, recklessly unleashed into the money market every month, whenever CBN consciously and deliberately creates Naira substitutes as allocations, at its own unilaterally declared exchange rate, in place of dollar denominated revenue to Federal and State Governments and their Agencies; predictably, such bloated Naira substitutions invariably increase the level of excess Naira supply, in the money market, to drive higher rates of inflation and interest rates, which, expectedly, will precipitate contracting consumer demand and a weaker economy!

So, the question ultimately, is whether CBN can ever achieve best practice inflation rates which support robust economic and inclusive growth everywhere, if the Apex Bank does not eliminate the seemingly eternal albatross of excess Naira supply which facilitates unfettered credit expansion in Nigeria’s money market, even when economic output is declining!

Invariably, if rising inflation rates continue to compel higher and higher cost of funds, which would constrain consumer demand and investment, Emefiele’s expectation that “working closely with our fiscal authorities” to target double-digit economic growth rates, within the next five years, will certainly remain a pipe dream, so long as CBN continues to, consciously inundate the money market with excess Naira liquidity, whenever it, unilaterally, substitutes Naira values for monthly distributable dollar denominated revenue at its own determined rate!    In such event, the rate of unemployment will as usual, inevitably spiral, rather than decelerate as Emefiele proposes, until it sadly becomes impossible for more Nigerians to exit the poverty trap which CBN has recklessly fabricated.

Furthermore, apart from the poisonous inflationary fuel of too much money in the market, the CBN, unexpectedly, still compounds its heavy debt liability, by paying between 9-18% AWOOF interest to borrow from banks and other investors in order to reduce the inflationary threat of too much cash in the money market!

Incidentally, the banks earn, between N600bn to N1trn, annually, as interest on those excess funds in the money market that CBN mops up from the banks with abnormally high interest rates, in order to restrain inflation! The critical question, however, is, would you pay any interest whatsoever, on the same funds that you alone, also, have power to create, in the first place; especially when the funds you borrowed will ultimately be inexplicably sterilized from any tangible or useful economic application in order to restrain the well known horrid inflationary consequences of too much money in the money market!!


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