CBN funding of FG excessive – Salami

A member of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), Dr. Doyin Salami, has said that the CBN is acting like a “piggy bank” with its funding of the Federal Government.
Salami said he was struggling to understand the CBN’s economic rationale for such action.
Monetary data showed a “sharp rise” in the CBN’s financing of the government deficit this year, Salami said after the MPC’s July 24th to 25th meeting, Bloomberg reported quoting a CBN statement published on Tuesday.
He said the CBN’s claims on the government had risen “20-fold” to N814bn from the end of 2016, while its purchases of government treasury bills increased by 30 per cent to N454bn.
“It is clear that the CBN has provided piggy-bank services to the federal government,” Salami said.
“While I still wonder what the underlying economics is, I sincerely hope it works,” he added.
The Federal Government is struggling to raise enough revenue amid economic challenges.
The Gross Domestic Product expanded by 0.6 per cent from a year earlier in the three months through June after contracting for the previous five quarters.
The MPC has kept its key rate at a record-high 14 per cent since July 2016 and is scheduled to make its next policy decision on September 26.
All four analysts surveyed by Bloomberg expect it will keep the rate unchanged.
Revenue in the first three months of the year was 36 per cent less than what the government budgeted and was 49 per cent short in May, according to the central bank.
Salami, who is an academic at Lagos Business School and retires from the MPC this year, has previously criticised the policies of Governor Godwin Emefiele.
In January, he said the CBN was “pretending” to tighten monetary policy while boosting money supply at the same time.
In his latest comments, he said, “The massive injections of cash to the government don’t show up in higher inflation data and currency weakness because the regulator used ‘special auctions’ that effectively raised banks’ cash-reserve requirements beyond the stipulated 22.5 per cent.”
Consumer-price growth eased to 16 per cent in July, the National Bureau of Statistics said last week.
“We thus find ourselves at a point where government borrowing from the CBN is neutralised by raising the CRR of banks, thereby limiting private-sector access to credit,” Salami said.
“In other words, the private sector is deliberately crowded out,” he added.
The CBN spokesman, Isaac Okorafor, didn’t answer calls to his mobile or respond to a text message seeking comment, Bloomberg reported.
Salami and another MPC member voted to cut the policy rate at the July meeting, while the other six who were present, including Emefiele, wanted to hold.
“Monetary policy management is presently about funding the federal government,” Salami said.
“Policy consistency and credibility demand that the monetary policy rate be significantly reduced to reflect the underlying preferences of policy managers,” he added.
Credit: Bloomberg.