Excess Oil Revenue: CBN warns govt against ‘spending spree’

With crude oil price rising steadily above benchmark level approved in the 2019 budget, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) on Tuesday warned the federal government against embarking on a spending spree. It urged the government to begin to save for the rainy day.

In its communique at the end of its two-day meeting in Abuja on Tuesday, the committee asked the federal government to urgently build financial buffers through a more realistic crude oil price benchmark in its budget.

“The crude oil benchmark in the 2019 budget is $60 per barrel at 2.3 million barrels per day output level. Now that price is almost at $70 per barrel, what the MPC is saying is that there is no need for government to say it should begin to spend since we have more money by increasing the budget benchmark from $60 per barrel to say $69 or $70.

“If the money is realised between $69 and $72, we should save and build buffer for the rainy day when it happens,” the committee said.

Also, the committee recommended a framework to speed up the recovery of delinquent loans in the banking system and open up access to credits to the real sector to boost growth of the economy.

The committee also called on the CBN to urgently establish modalities to promote consumer and mortgage lending in the economy to boost the flow of credit to the real sector and drive output growth.

Sustaining Growth

The CBN governor, Godwin Emefiele, said the MPC noted the National Bureau of Statistics (NBS) Gross Domestic Product (GDP) report which showed the economy grew by 2.01 per cent in the first quarter of 2019 compared with 1.89 per cent in the corresponding quarters of 2018.

Driven largely by the non-oil sector, which grew by 2.47 per cent in the first quarter of 2019, against the contraction of the oil sector by 2.40 per cent during the period, the committee said real GDP is projected to grow by 2.34 and 2.36 per cent in the second and third quarters respectively.

The committee, however, observed that actual output in the economy remained below its potential. It urged the federal government to take steps to sustain the stability in the financial system; continue the special interventions in agriculture, manufacturing and small and medium enterprises sectors by the banks.

The committee emphasised the need to sustain efforts in improving transport infrastructure to address distribution challenges; continue expansion of business activities and increase supply of foreign exchange to growth-stimulating sectors of the economy.

To boost capacity for non-inflationary growth in the economy, the MPC stressed the need for increased credit delivery to the private sector as the main engine of growth.

The committee frowned at the poor flow of credit from the Deposit Money Banks (DMBs) to the private sector, urging the CBN to urgently take steps to curb the growing appetite of the banks to patronise other sectors.

Curbing Inflationary Pressure

The MPC called for a close monitoring of rising inflationary pressures in April 2019, driven largely by food shortages during the Easter season, the commencement of the planting season as well as persisting security challenges in some of the food producing regions of the country.

Urging the relevant authorities to strengthen efforts to address the security challenges and improve food production, the MPC encouraged financial intermediating institutions to ensure loans to the agricultural sector were channeled effectively to end users.

Noting moderating non-performing loan (NPL) ratios from about 19 per cent on the average a year or two ago, and from 15 to 17 per cent average to current level of about 10 per cent, the committee said it remained above the prudential benchmark of five per cent.

It expressed optimism that the steps to be taken by the CBN to support the banks through structured engagements in administrative, legal and regulatory framework to mitigate credit risks.

This, it said, will open up the credit delivery to the economy and bring the NPLs down to an acceptable level as well as encourage the DMBs to start lending money more ‘aggressively’ to sectors considered to be risky.

The committee called on the CBN to provide a mechanism to limit DMBs access to government securities, saying such unfettered access “was crowding out private sector lending.”

Curbing banks’ dealings on government securities, the MPC noted, would redirect lending focus to the private sector and spur the much needed growth in the economy.

It called on the government to use all machinery at its disposal to increase tax revenues to enable the government fund its budget adequately.