CBN’s Financing Of Govt’s Operation Best For Nigeria’s Economy, Emefiele Tells Fitch

The Central Bank of Nigeria’s has said that its constant funding of the operations of the Federal Government was the best option available to deal with the impact of the Covid-19 pandemic on the Nigerian economy.

The apex bank governor, Godwin Emefiele, called out the New York based credit rating firm on Tuesday during the 277th Monetary Policy Committee meeting.

Fitch had said that sustained use of direct monetary financing by the CBN to finance the Federal Government could raise risks to macroeconomic stability.

Fitch had said, “The Federal Government of Nigeria’s repeated recourse to its Ways and Means facility with the Central Bank highlights weaknesses in public finance management.”

In response, Emefiele said, “It is important for me to present it this way. It is unfair and I will say very unfortunate that Fitch which is known to be a first-class company and a first-class rating agency will hold such views on what we are doing and therefore pass judgment regarding the size of credit that the central bank has granted to the Federal Government of Nigeria.

“Let it be known first and foremost, that the Central Bank of Nigeria is a banker to the government. Second, let it be known that the Central Bank of Nigeria is a lender of last resort not just to the government but even to our banks when they run into short term liquidity problems.

“And above that, because Fitch said that it predated Covid-19, yes it is true. In 2015 and 2016, you will recall that there was a global crisis that resulted in a massive drop in the price of crude oil. Like you all know unfortunately Nigeria is a country that will celebrate when the crude oil price is high but will sneeze when the price of crude goes down.

“In this case, the price of crude went down and we sneezed. We sneezed because revenue came down. When revenue came down, the government became incapable of financing all its obligations. If the government cannot finance all its obligations, I think it will be irresistible for the Central Bank of Nigeria as a lender of last resort not to support the Federal Government.”

He said with the impact of the coronavirus pandemic on the global economy, most Central Banks came to the rescue of their government adding that CBN was not an exception.

He added, Now Covid-19 started, it came. We are not only having a global crisis, it is a crisis of monumental proportions never seen in our lifetime. A health crisis that has rendered every economy to be very useless. A health crisis that has cut every global leader pants down without resolution.

“Today as we speak even the vaccines that have been said to be workable, they are not even 100 percent efficacious. People have doubts about their efficacy whether the second variant or various variants going through different countries will respond to the vaccines.

“Not only has the health crisis resulted in terrible fatalities, but the same health crisis has also elevated the global economic crisis.”

He said the price of crude in February, March and April 2020 was as low as $17 per barrel, noting that with the slump in crude prices, the cost of production became higher than the revenue from the commodity.

The Nigerian National Petroleum Corporation had said that the unit cost of crude oil production was over $20. Crude oil export constitutes over 90 per cent of foreign exchange revenues.

He said, “And then Fitch said that the Central Bank of Nigeria is lending to the Federal Government. Let me say that these crises are of a global dimension and as a result, the Central Bank of Nigeria is not alone in providing support to a government.”

Emefiele noted that advanced and emerging markets have implemented both conventional and unconventional monetary measures to stimulate economic recovery.

The United States Federal Reserve had been projected to have injected over $7trn in lending in 2020 alone, he noted.

The Federal Reserves Bank in April alone pumped $2.3trn into the US economy.

To further support the apex bank’s position, Emefiele said the Central Bank of England in 2020 injected funds over 56 per cent of its Gross Domestic Product, representing $1.57trn.

The United States president, Joe Biden has proposed an additional $1.9trn stimulus to inject into the economy.

Emefiele said the apex bank has only injected $13.bn which is only 1.4 per cent of the GDP.

“When Fitch an institution as recognised and reputable as they are, come out and make such remarks, passing judgements and supported by some newspaper, unfortunately, all I can is that it is very unfair because those statements are totally misplaced,” he added.