BY MARY KUYE
Central Bank of Nigeria (CBN) led Monetary Policy Committee, Professor Adeola Adenikinju has expressed fears over inflation persistence in the country.
Analyzing the state of the economy and foreign exchange market, he said there is a continuous decline in foreign reserves, the liquidity surfeit in the economy, the negative current account balance, the poor state of the fiscal sector, fall in prices of financial assets, and the bearish outlook for the oil sector.
He said the foreign exchange markets were generally stable aided by the foreign exchange interventions of the CBN.
According to the analysis, foreign reserves fell from $41.54 billion in December 2018 to $38.07 billion in December 2019. Also, the current account balance by the third quarter, 2019 was -2.24 per cent of Gross Domestic Product (GDP). This was better than -3.27 per cent in the second quarter, 2019.
Capital importation in December 2019, he noted went largely into the purchase of shares, finance, banking and trading, adding, the non- financial sectors of the economy attracted only an insignificant share of total capital imports. ”The fiscal side continues to pose a significant challenge in my view,” he posited.
He said the rising debt level and high fiscal deficit pose a significant challenge to effective economic management.
Professor Adenikinju continues, ”Between January and September 2019, actual revenue stood at 52 per cent below budgeted revenue, whereas actual expenditure exceeded planned expenditure over the same period. Capital expenditure, which is expected to drive economic growth, as expected underperformed.
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”The MPC should not ignore the inflation threat. The primary responsibility of the CBN remains price stability.
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“The fall in interest rates across financial market instruments is suggestive of liquidity surfeit in the system. The CBN policy to increase lending to the real sector is a good policy to boost the supply side of the economy and relax constraints to domestic food and agricultural supply. ”This policy is in order and CBN should maintain it. Several analyses have shown that among the policies available to control liquidity in the Nigerian economy, the Cash Reserve Requirement is the most potent.”
