- CBN warns lowering interest rate may be counter-productive
The World Bank Thursday announced its approval of $2.1 billion as project support loan for Nigeria.
The concessionary loan is to support the funding of seven projects in key sectors of the country.
The cheering news coincided with a warning by the Director, Monetary Policy, Central Bank of Nigeria (CBN), Mr. Moses Tule, that a reduction in the benchmark Monetary Policy Rate (MPR) at this time would throw up a cocktail of fiscal challenges in the economy and create more inflationary pressure.
But the World Bank in a statement listed the seven projects its loan would support to include nutrition, access to electricity, states’ fiscal transparency, polio eradication, women’s economic empowerment, public finance and national statistics and reducing vulnerability to soil erosion.
The statement quoted World Bank Country Director for Nigeria, Rachid Benmessaoud, to have explained that the federal government’s Economic Recovery and Growth Plan (ERGP) identified human capital investment, restoring growth, and building a competitive economy as key pillars.
The global bank recently extended its Country Partnership Strategy (CPS) for Nigeria to June 30, 2019. During the period 2018 and 2019, its support is expected to focus on revenue diversification and mobilisation, addressing the binding constraints for attracting private financing, and improving social services delivery for building the human capital needed for inclusive economic growth, in alignment with the ERGP.
The approved programme of support in 2018 comprised transparency projects.
According to Benmessaoud, the vision for a healthy, educated, productive and resilient population must be complemented by credible governance to attract private sector participation and ensure sustainable growth.
He said the approved projects support the implementation of government’s growth plan for the economy, adding that strengthened fiscal transparency would help build trust in government, enhance the monitoring of fiscal risks and facilitate accountability in public resource management.
The project would be financed through an International Development Association (IDA) credit of $750 million.
Also, the Fiscal Governance and Institutions Project would improve the credibility of public finance and national statistics in the country, while fiscal governance is a key foundation for all other public-sector reforms.
Furthermore, it stated that the project would help increase revenue and capital expenditure, strengthen fiscal accountability, including expenditure effectiveness and also improve the quality of statistical information contributing to evidence-based policy making.
The project would be financed through an IDA credit of $125 million.
Similarly, the World Bank pointed out that the Nigeria Erosion and Watershed Management Project was designed to promote innovative and integrated approaches based on international best practices and community participation to tackle land degradation and major gully erosion formations in participating states.
“The project will support Nigeria in building its climate resilience and meeting her National Determined Contributions, apart from scaling up the issuance of Green Bonds to leverage more financing for sustainable development. This additional financing is an IDA credit of $400 million,” it added.
Also, for the power sector, the Nigeria Electrification Project would leverage private sector investments in solar mini-grids and stand-alone solar systems to provide electricity to 2.5 million people and 70,000 micro, small and medium enterprises.
The project would also provide publicly-funded reliable electricity to seven universities and two teaching hospitals.
It stated: “Besides, the project would support the development of a sustainable framework for expanding electricity access in Nigeria over the long term, with $350 million financed through an IDA credit made available for it.
“Next, is the Accelerating Nutrition Results in Nigeria Project, which will benefit over 8.7 million people, mostly pregnant and lactating women, adolescent girls and children below five years old.
“As the first dedicated large investment in Nigeria on nutrition-specific interventions and outcomes, the project will contribute to reducing chronic malnutrition, maternal and child mortality rates, improved school completion and performance, and consequently, enhanced labour force productivity and economic growth in Nigeria.
“The financing for this project consists of an IDA credit of $225 million and a Global Financing Facility grant of another $7 million. The Nigeria Polio Eradication Support Project is expected to help improve immunisation coverage with oral vaccines to the national target of 85 per cent in 18 months.
“Improving routine immunisation coverage, which is critical to improving child health and reducing infant mortality, will attract additional financing with an IDA credit of $150 million.”
For the Nigeria for Women Project, about $100 million finance through an IDA credit has been approved for the project designed to directly impact 324,000 women beneficiaries through investments in comprehensive skills training, the leverage of financial and technical resources, and support to policy dialogue on women’s economic empowerment, the bank added.
Meanwhile, the Director, Monetary Policy, CBN, Mr. Moses Tule, has warned that a reduction in the benchmark MPR at this time would throw up a cocktail of fiscal challenges in the economy and create more inflationary pressure.
Speaking to journalists in Abuja, on the sidelines of the maiden colloquium of Prof. Uche Uwaleke, the nation’s first professor of capital market, Tule argued that reducing MPR at this time, which has since July 2016 remained at 14 per cent would trigger adverse consequences, including the demand for increased wages.
He said: “When you reduce MPR, of course, the way the fundamentals are today, you are going to have the impact of that in other ways; which means the demand is going to be higher on the government to increase wages because inflation will erode the living wage. There will be demand on the government, and every other person in the private sector will demand for wage increase.
“That’s the choice. We have to choose between having to improve infrastructure and interest rate will come down overtime and the whole economy will benefit or reduce interest rate now and then worsen inflation.”
He debunked insinuations that there was no convergence between monetary and fiscal policies, noting that the fiscal and monetary authorities had come up with measures that helped to put the economy on a growth trajectory.
Tule cited CBN’s ability to put in place foreign exchange measures, which culminated in the steady accretion into the foreign reserves such that the reserves now stand at about $48 billion.
He argued that had the CBN not built up the reserves, the necessary buffers provided in the past few weeks to temper the pressure occasioned by the normalisation of interest rate in the United States of America would not have been there.
The CBN chief also commended fiscal measures put in place by the government, including the decision to look towards offshore borrowing in order not to crowd out the private sector.
Earlier in a panel discussion on ‘Fiscal and Monetary Policies for Deepening the Capital Market in Nigeria,’ Tule had pointed out that stabilising the economy was desirable to attract investment in the capital market, adding that the CBN had been able to build external reserves.
He called on the federal government to come up with fiscal measures to deepen the capital market.
In his remarks, the chairman of the colloquium and a former Director General of the Securities and Exchange Commission (SEC), Dr. Suleiman Ndanusa, and other panel of discussants argued that the overall growth of the country depends on the financial market.
They called for a good governance structure to inspire confidence in both local and international investors.
In his speech, the celebrant, Prof. Uwaleke, called for the diversification of the capital market to ensure that various sectors of the economy are players in the market.
