Federal Government’s Borrowing excessive — CBN

The Central Bank of Nigeria, CBN, has expressed concern over the borrowing activities of the federal government, saying the pace of government’s borrowing has exceeded the target for the 2017 fiscal year.


The CBN position came along with its Monetary Policy Committee, MPC, decision at the end of the second quarter 2017 meeting, yesterday, to retain all its key policy rates, citing challenges weighing down the domestic economy and uncertainties in the global environment. The decision also followed announcement by the National Bureau of Statistics, NBS, that the nation’s economy contracted for the fifth consecutive quarter, as the real Gross Domestic Products, GDP, declined by 0.52 percent in the first quarter of 2017.

According to the NBS, “In the first quarter of 2017, the nation’s Gross Domestic Product, GDP, contracted by -0.52 percent (year-on-year) in real terms, representing the fifth consecutive quarter of contraction since Q1 2016. This is 0.15 percent higher than the rate recorded in the corresponding quarter of 2016 (revised to -0.67 percent from -0.36 percent) higher by 1.21 per cent points from rate recorded in the preceding quarter, (revised to -1.73 percent from -1.30 percent). Quarter-on-quarter, real GDP growth was 12.92 percent. During the quarter, aggregate  GDP stood at N26.03 trillion in nominal terms, compared to N22.24 trillion in Q1 2016, resulting in a nominal GDP growth of 17.06 percent.”

Announcing the decision of the MPC meeting, CBN Governor, Mr. Godwin Emefiele said the Net Domestic Credit, NDC, grew by 1.40 percent in April, 2017, annualized to 4.21 percent, which is significantly below the 17.93 per cent provisional growth benchmark for 2017. However, net credit to government, according to him, grew by 24.08 percent over end-December 2016, representing an annualized growth of 72 percent.

The MPC Communique stated: “The Committee was concerned that credit to government continued to outpace the programmed target of 33.12 per cent for fiscal 2017, while credit to the private sector declined considerably far below the programmed target of 14.88 per cent.” On the other hand, the MPC called for increased lending to the private sector by banks, even as it urged the CBN to increase surveillance of the banking sector.

“On the financial stability outlook, the Committee noted that in spite of the banking sector’s resilience, the weak macroeconomic environment has continued to exert pressure on the banking system. The MPC urged the CBN to intensify its surveillance, in order to address emerging vulnerabilities.”

Commenting on the concern express by the CBN on the level of federal government’s borrowing, Head of Research, Vetiva Capital Management Limited, Mr. Pabina Yinkere said: “The high pace of government borrowing is coming as a result of government revenue undershooting the budget expectation hence the need for government to borrow more to cover up for the short fall in revenue

“The impact on the economy is first, increase in interest rates and government crowding out the private sector. People see government as the safest borrower so they will prefer to give their money to government, while the private sector will be getting less money. But I don’t expect the pace of government borrowing to continue through the year. The government itself is aware of the impact of its borrowing and hence the decision to consider borrowing from external sources. Instead, the government is looking at Eurobond issuance, and borrowing from external DFIs.”

Explaining the rationale to retain the Monetary Policy Rate, MPR, at 14 per cent as well as other policy rates, Emefiele said, “In consideration of the challenges weighing down the domestic economy and the uncertainties in the global environment, the Committee decided by a unanimous vote of the eight members in attendance to retain the MPR at 14.0 per cent alongside all other policy parameters. One member was absent at the meeting. In summary, the MPC decided to: Retain the MPR at 14 per cent; Retain the CRR at 22.5 per cent; Retain the Liquidity Ratio at 30.00 per cent; and  Retain the Asymmetric corridor at +200 and -500 basis points around the MPR.”

The CBN governor said the committee welcomed the passage of the 2017 Budget but identified associated risks, inherent in its implications and decided to leave the rates unchanged. He identified such associated risks as banking system liquidity of the envisaged fiscal injections during the remainder of the year, stressing that the Committee decided that the MPR should not be lowered, to avoid exacerbating inflation. On the other hand, he said that tightening rate it further could widen the existing income gap, depress aggregate consumption and hurt the real sector.

According to the CBN boss, “the Committee urged the fiscal authorities to expeditiously commence the implementation of the recently approved 2017 budget, especially, the capital expenditure portion, to sustain the momentum of recovery, engender employment and restore confidence in the Nigerian economy.

“The Committee expects that the timely implementation of this plan, judicious execution of the approved 2017 Budget and sustenance of the new foreign exchange implementation regime supported by the restoration of security in different parts of the country, especially, in the Niger Delta region, would help accelerate growth and restore confidence in the economy.”