MPC sees fiscal, monetary policy coordination boosting growth

The Central Bank of Nigeria (CBN) on October 27 released Communiqué’ No., 103 of the Monetary Policy Committee (MPC) meeting of Monday and Tuesday, September 21 and 22, 2015, with a number of the members expressing the urgency for fiscal and monetary policy co-ordination to boost growth.

“With respect to the slowdown in growth, as I have argued in my previous statements, the underlying causes are largely structural in nature,” Adelabu Adebayo, a deputy governor of the CBN said in his statement.

“Complimentary factors that could enhance the ease of business environment should not be discounted in order to promote foreign direct investment.”

Real GDP expanded by 2.35 per cent in the second quarter of 2015, a significant decrease when compared with the 3.96 and 6.54 per cent in the preceding quarter and corresponding period of 2014, respectively, according to the National Bureau of Statistics (NBS).

For Sarah Alade, CBN Deputy Governor, Economic Policy and MPC member, the Nigerian economy remains resilient but policy actions will be needed to secure the gains made.

“In the coming months, as government economic policy is articulated, and a conducive environment is created to attract foreign and domestic investors, the downside risk to growth could be reversed,” Alade said.

Nigeria’s headline inflation increased to 9.4 percent in September, from 9.3 percent in August and 9.2 percent recorded in July.

This is the fourth consecutive month that headline inflation has surpassed the up limit of the Central Bank inflation target of 9 percent set since 2013.

To promote inclusive growth, job creation and development in the economy, there is need for the rehabilitation of the infrastructure in the North-East region in particular, and Nigeria in general, according to Balami Dahiru Hassan, a member of the MPC.

“The non-execution of many capital projects in Nigeria in 2015 implies series of future problems for the economy,” Balami said.

The halving of oil prices since 2014 has made it difficult for the Nigerian government to fund infrastructure projects like roads and bridges this year.

The Federal government gets up to 70 percent of its budget from crude oil earnings.

Imbalances in the domestic environment include dwindling fiscal revenue relative to expenditure, suggesting imminent twin deficits of fiscal and current account deficits, as well as imbalances in the real sector, occasioned by suppressed demand, according to Suleiman Barau, Deputy Governor, Operations Directorate at the CBN in his submissions.

“It is obvious that monetary policy tools may not be sufficient to simultaneously address all of these imbalances, thus requiring strengthening the synergy between the fiscal and monetary authorities,” Barau said.

Abdul-Ganiyu Garba, a professor of Economics at the Ahmadu Bello University Zaria, re-iterated his preference for a forward looking fiscal policy regime anchored on a commitment to the fiscal rules in the Fiscal Responsibility Act of 2007 and a strategic and forward looking management of oil and gas resources to build forex reserves required to support a stable currency.

“Had fiscal policy been forward looking, public savings would have been built up and the fiscal buffers would have minimised the effects of the shocks (commodity price collapse, bubble corrections and reverse flows),” Garba said.

In his submissions, the CBN Governor, Godwin Emefiele noted that the sub-par performance of the Nigerian economy in the second quarter highlights the immediate need for fiscal consolidation and an accelerated diversification of the economy.

“I reiterate the imperatives of a coordinated synergy of fiscal and monetary policies as the panacea that will reposition Nigeria in the aftermath of the prevailing unsavoury conditions,” Emefiele said.

Ten out of twelve MPC members were in attendance at the last meeting.

PATRICK ATUANYA