The monetary policy committee (MPC) of the Central Bank of Nigeria (CBN) last week voted to maintain the status quo on Nigeria’s monetary policy rate (MPR), the rate at which CBN lends money to commercial banks. Many with opposing views on MPR movements were disappointed by the decision of the MPC.
In May 2020, MPC dropped MPR by one percentage point to 12.5 per cent in a bid to ease liquidity squeeze and facilitate job creation even as the naira was taking a bashing in the foreign exchange market. Those who advocate the easing of liquidity expected MPC to at least drop MPR to 12 per cent to accelerate growth.
However, advocates of liquidity squeeze expected the MPC to inch up MPR by at least one percentage point in a bid to reduce liquidity and mitigate the trouncing of the naira in the foreign exchange market.
Unfortunately, the CBN has reached both its upper and lower limits in the use of MPR as a weapon for confronting enemies of Nigeria’s besieged economy.
Nigeria’s economy is like Madrid of 1937 when Emilio Mola (June 8, 1887–June 3, 1937), an insurgent general, laid siege to the Spanish capital during the country’s civil war. Mola told newsmen: “I have surrounded Madrid with four columns of troops. The fifth column is already in the city”. Mola’s fifth column was thousands of treacherous supporters of the insurgency already in the city undermining the tottering republican government. The statement gave rise to the popular expression “fifth column”, often used to describe saboteurs and traitors.
Nigeria’s economy is surrounded by four columns of “troops”. The fifth column, the most deadly in the campaign, is already within the system. It is a nest of corrupt politicians and top civil servants mercilessly looting the bleeding economy.
The four columns surrounding the economy in readiness for the final assault are epileptic power supply, terribly bad roads, comatose rail system and seemingly insurmountable security crisis.
They have surrounded the economy and successfully blocked critical supply lines. They have choked out needed foreign investment that would ease the perilous cash crunch in the foreign exchange market and create jobs for Nigeria’s army of 30 million jobless people.
While the four columns have blocked supply routes effectively, the fifth column inside the system is busy looting what is left. The House of Representatives is poised to probe an alleged diversion of N100 billion from the account of the North-East Development Commission. Money meant for the feeding of refugees in deplorable camps is looted by rich civil servants and politicians while the refugees starve.
The interim management of the Niger Delta Development Commission (NDDC) told the National Assembly last week that the sum of N1.4 billion was spent on COVID-19 palliatives for staff of the commission.
NDDC workers earn something close to oil company workers’ pay. They were collecting their salaries regularly during the lockdown.
They have no business collecting palliatives to the tune of what could establish a 20, 000-hectare rice farm for millions of unemployed youth in the region. No one knows whether any NDDC staff collected palliatives. The money might just have vanished.
Besides, there are fears that the loot recovered from corrupt politicians by the Economic and Financial Crimes Commission (EFCC) is being re-looted. The looters are ruthless and selfish.
No level of monetary policy dexterity on the part of the CBN or the MPC can correct the damage inflicted on the system by the four columns of troops surrounding the economy and the fifth column already within it.
The MPC was in a tight corner about the direction the MPR could go. Movement of MPR in any direction is dangerous at the moment.
Reduction in MPR would unleash billions of naira chasing the few dollars in the foreign exchange market. The liquidity rain that would have followed a reduction in MPR would be disastrous for the naira. It could push the official exchange rate to N400 to the dollar. In an import-dependent economy, that is an invitation to spiraling inflation.
Conversely, MPC would have worsened a bad situation by inching up the MPR. An increase in MPR would trigger a liquidity squeeze at a time when unemployment is sailing perilously close to 40 per cent. Nigerian banks respond more rapidly to interest rate hikes than reduction. A one percentage point rise in MPR could trigger three percentage points increase in lending rates while deposit rates remain stagnant.
Ironically, the way Nigeria’s economy is structured, a reduction or increase in MPR is capable of fueling inflation. A reduction would trigger imported inflation as a weak naira escalates the cost of imported goods.
An increase in MPR would raise the cost of funds, reduce liquidity, hike production cost and equally fuel inflation. Either way, the Nigerian consumer and job seeker is the loser.
The CBN has reached the dead end in its manipulation of monetary policy instruments to correct anomalies in Nigeria’s encircled economy. The only thing needed now for economic improvement is fiscal measures commensurate with CBN monetary policy.
Insecurity has driven away hundreds of billions of naira in domestic and foreign investments that would have improved liquidity in the forex market and created jobs in the economy.
Government can drastically reduce insecurity if Fulani herdsmen burning down villages and slaughtering those who complain about destruction of their farmlands by cattle, are arrested, prosecuted and punished appropriately.
The terror war in the north-east by a band of illiterate religious extremists has lasted too long and inflicted unacceptable economic and human casualties. A change of guard at the top echelon of the military command structure might conjure the battle field supremacy essential for victory.
Government has no idea on how to end Nigeria’s eternal darkness. The economy runs on generators. That is why nothing works.
The power sector privatization of November 2013 is a colossal failure. The 11 distribution firms (DisCos) lack the technical expertise, financial muscle and management acumen to distribute even the limited power generated by the power generation firms (GenCos). They should be replaced with investors who are experienced and liquid enough to rehabilitate the decaying distribution infrastructure.
The problem of Nigeria is dwindling revenue engendered by endemic corruption, decaying infrastructure and worsening insecurity. The solution is fiscal measures not monetary policy manipulation.