CBN offers to provide FG bridging facility to cushion recession - Businessday

September 19, 2016
The Central Bank of Nigeria (CBN) has offered to provide a bridging loan to the Federal Government to stimulate the economy and steer it out of recession. Godwin Emefiele, the apex bank's governor, at the weekend also assured investors of a quick recovery in the fourth quarter of this year, as some major fiscal and monetary policies begin to impact the citizens. "I want to assure you that both the monetary and fiscal authorities are working together and that is why you could see a situation where today, even when we have revenue shortage or deficit, the monetary authority is trying to bridge the gap. "We said that we can give you a bridge to go ahead and spend, when you obtain the foreign loan or when your revenue improves, you can repay the bridge that we have created for you in order to stimulate spending. That is a practical case of collaboration between the monetary and fiscal authorities," Emefiele said at an interview with select journalists in Lagos.

The governor expressed optimism about the fact that the monetary, fiscal and budgetary authorities are working in sync, adding that the foreign exchange market has recorded $1 billion foreign inflow following the liberalization of the FX market three months ago.
"I am very sure that there will be more inflows and more people will have FX to do their business. As we see more inflows, rates will come down. I am very optimistic the situation will come to end very soon."

Expressing further positives from recent monetary policy measures, the governor said , "in the short run, there are other actions we are taking to encourage dollar inflows. I have talked about the fiscal authorities aggressively pushing in liquidity to stimulate consumption, demand and expenditure. When this is stimulated, we will find that the demand for food would go up and if this demand for food goes up and is not marred by low industrial capacity, then we will see economic activities. I am confident that the situation will come to an end very soon."

Emefiele further assured that the worst of the recession is over, as government is on top of the situation. "We are already in the valley, the only direction is to go is up the hill and the government is doing everything possible to ensure that we move up the hill. I am optimistic that based on the actions being taken by government, based on the pronouncements of President Buhari that we must think out of the box, the monetary and fiscal authorities are working together and I'm optimistic that the fourth quarter results will show evidence that we have started to move in the direction of the hill, and out of the recession. "And I repeat, the worst is over. The Nigerian economy is on the path of recovery and growth. So, please if you are a bystander or sideliner, you are losing. Join the train now before it leaves the station," he said.

Emefiele also assured that there will not be fuel crisis from the fluctuations in the foreign exchange rate, based on agreement between the CBN and NNPC that the dollars from the International Oil Companies, oil companies and oil service companies that are selling their foreign currency should channel their dollars through a mechanism created by the CBN and NNPC where the dollars will be made available to marketers to go and import petrol. "With the arrangement put in place ; and I mean the agreement between CBN and NNPC to ensure that the dollar is available to the importers of petroleum products, all the IOCS selling dollars have been directed to channel to marketers to import fuel.

This a mechanism created by CBN and NNPC. "At the time this programme started, were told that they could procure forex at no more than N280 to the dollar and the price should not be more than N145 per litre. In working out the effective price of N145 the template provide for nothing less than N30 per litre margin for the marketer. "You can quote me on this. That template is available.

By making N30 per litre available to the marketer, what this does is that even if the marketer does not find the product at N280 to the dollar and he finds it at a price close to N300 to the dollar or N305 or even N310, that marketer will still make a profit even though it could be a reduced margin. "That is the template that is currently in place and I am optimistic that it will work. Based on this arrangement between CBN and NNPC, we will see to it that IOCS are not compelled to sell at a fixed rate, we will see to it that they sell at the average of the interbank rate of the previous day, which means where the marginal rate is N305, and some are selling at N310 or N315 the rate will then be between N305 and N310. "If the marketer procures Forex at an average of N305 and N310, they will still make a profit and sell that petroleum product at not more than N145 per litre." He added.

The governor also said that Nigeria could raise about $35 billion from the sale of its holdings in the oil and gas sector to help fund a bigger stimulus package to revive its ailing economy.
Some analysts said last night, that the message of hope, as well as last week's announcement by the fiscal authority of the injection of $350 billion to $400 billion capital votes into the economy, as part of measures to address the recession, would mean that Nigeria could wriggle out of the recession earlier than anticipated. "Apart from that, we recognise the need for more revenue, not just in naira but in dollars. You will recall that in April 2015 I granted an interview to the Fianancial Times of London, where I suggested that in order to raise money to fund its capital expenditure, government needed to sell between 10% to 15% of its oil and gas assets. "At that time oil price was about N50/N55 per barrel, and our consultants did the numbers and told us that we could raise between $25billion to $35 billion .

I would imagine that that option is still on the table because more people, even in the cabinet have made the same suggestion and if it happens , that will be fine, including the option to buy back the assets at some premium if we contemplate buying back when the crude prices move up and the assets value also move up. "In spite of these government spends, the monetary authority looks for its own ways to inject liquidity so that what has gone up through exchange rate, if the manufacturers can get it through moderated interest rate and improve industrial capacity, it will help to moderate prices such that the adverse impact of exchange rate does not really hit too hard where you are having adverse impact of exchange rate, as well as adverse impact on prices.

Those are the things we are doing. It is a delicate balance and we must give credit to the monetary and fiscal authorities on what they are doing to ensure that the impact is reduced and that we turn round the corner as quickly as possible," he added.

The governor said part of the plans of the CBN in 2016 is to ensure that one million women benefit from loans at subsidised rates. "The CBN is in discussion with fiscal authority that we put this in place," he added.

Responding to the effect of new spending on inflation, he said the quickest way to get out of the present situation is to spend out recession, adding that "government will spend to achieve growth but needs to be careful so that it does not result in skyrocketing inflation."

Hope Moses-Ashike & Lolade Akinmurele

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Steven Rich
Sep 17, 2018:
Well done

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