CBN Governor. Mr. Godwin Emefiele
Nigerians have been warned to brace up for the hard times ahead as
oil revenue is predicted to hit a record low. The Monetary Policy
Committee of the Central Bank of Nigeria gave the warning on Tuesday
warned.
The committee observed that while the period of low oil prices,
which occurred in 2005, lasted for a maximum of eight months, the
current situation was expected to continue over a longer period of time.
The communique was read out after the first meeting for the 2016
fiscal period in Abuja, by the CBN Governor. Mr. Godwin Emefiele.
Following the decline in crude oil prices from a peak of $114
barrel in July 2014 to $30.25 per barrel on Tuesday, the CBN governor
said since oil prices had been on a steady decline, certain trade-offs
would have to be envisaged and accommodated.
He said, “The committee observed that the last episode of low
oil prices in 2005 lasted for a maximum period of eight months. However,
the current episode of lower oil prices is projected to remain over a
very long period.
“Consequently, it is imperative to brace for a longer period of
low government revenues from oil sources, which would necessitate hard
and uncomfortable choices as the economy transits to more sustainable
sources of revenue, consistent with the economic realities and strategic
objectives of the country. In the circumstance, certain trade-offs must
be envisaged and duly accommodated.”
He said other alternatives must be explored if the nation must be
saved from the crash in oil prices. The governor said the need for
consistently sound and coordinated macro economy policies had become
inevitable.
He added, “In the medium term within which monetary policy is
cast, the need to allow policy to produce the desired outcomes becomes a
key consideration in the policy mix.
“Consequently, the bank is fine-tuning the framework for
foreign exchange management with a view to ensuring a more effective and
liquid foreign exchange market, taking into account Nigeria’s strategic
development priorities, with the policies being designed within an
environment of regularly ensuring consistency with monetary and fiscal
policies.”
“The committee acknowledged the continuous liquidity surfeit in
the system stemming partly from the recent growth-stimulating monetary
policy measures as well as the tendency of the banks to invest excess
reserves in government securities rather than extend credit to the
needed sectors of the economy.
“To this end, the committee once again urged the Deposit Money
Banks to improve lending to the real sector as part of their patriotic
obligations to the country, and enjoined the management of the central
bank to continue to explore ways of incentivising lending to employment
and growth-generating sectors, particularly the SMEs.”
When asked if the CBN would consider forcing the banks to lend to
the real sector, Emefiele stated that inasmuch as it would prefer that
the DMBs should increase lending to the real sector, it would be
practically impossible to force them to do so due to the fact that the
banks were established to make profit.
He said, “Unfortunately, the DMBs are in business to make money
and we cannot regulate their interest rate. And so, it can be difficult
to really force them to lend to a particular set of people. But what we
can continue to do is to put in place policies that will encourage them
to do so or we can continue to incentivise them by putting in place
policies that will encourage them to do so.
“So, it is a free market and we cannot really compel them as it
is expected. We will continue to try. This is why at the last meeting,
we reduced the CRR from 25 per cent to 20 per cent. And we now insisted
that liquidity that would be made available or that those banks could
only enjoy the reduction if they introduce to the CBN projects that are
targeted at the real sector such as manufacturing, agriculture and the
SMEs.
“It is just two months since this policy (was introduced) and
it is still early to assess the impact. However, we remain optimistic
that the banks will heed this advice and lend to the real sector.
Because this liquidity is just sitting at the CBN and until they decide
to work with us on this, the funds will not be made available.”
On the introduction of the N50 stamp duty charge, Emefiele
explained that the decision was taken to support the government in its
bid to generate more revenue due to the drop in oil prices, adding that
the nation’s external reserves currently stood at about $28bn.
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