Nigeria Content Online

The
Central Bank of Nigeria’s (CBN) governor, Sanusi Lamido Sanusi, has
said that unaddressed economic problems are contributing to long-term
inflationary pressures.

He
made this statement on Friday at the end of the 69th Special Monetary
Policy Committee(MPC) Meeting in Abuja. He also said that inflation is
being exacerbated by the huge recurrent expenditure component in the
2010 budget, even as year-on-year headline inflation was announced to
have risen from 12 percent in the last quarter of 2009, to stabilize at
12.3 percent at the beginning of this year.

He
called for speedier government spending to address problems such as
bank lending and an adequate power supply, the absence of which means
greater costs to producers and higher prices for consumers.

“We
have a stimulus budget that is not signed. That budget has a very large
component that is recurrent expenditure, as opposed to capital
(appropriation). If we do not make progress in unlocking the structural
bottlenecks in the economy, by taking steps to address the five key
issues required to get the economy growing, we will end up with a high
risk of structural inflation,” Mr. Sanusi warned.

He
listed the five key issues necessary to attaining economic growth as
monetary and financial sector stability; development in key
infrastructure; investment in human capital development; as well as
price incentives to help boosts investment.

Price incentives

According
to him, price incentives come when one is talking about issues like
deregulation of the supply of petroleum products and the services in
the power sector, expressing regrets that at the moment “all these
issues have not moved as fast as they should.”

“If
these were to be so, the nation would get investments into those key
sectors. These are the things that would unlock the supply bottlenecks
in the economy and allow the system to flourish. Throwing monies into
recurrent expenditure will ultimately end up impacting negatively on
the level of inflation in the system, by either pushing up the prices
of domestic goods and services, or exerting pressures on the exchange
rate regime, and having the nation importing inflation into the economy.

“So,
to the extent that there is progress in the development of the power
sector and the infrastructure, these risks would get mitigated. But, if
we keep spending money without addressing those fundamental structural
issues, the nation will end up with a high risk of structural
inflation,” the CBN boss argued.

Core
inflation was said to have stabilised at 10.1 percent last January and
February, up from 9.7 percent recorded in the last quarter of last
year, with stability in the domestic price level attributed to the
continuing monetary contraction, continued delay in the passage of the
2010 federal budget, and the improvement in the supply of petroleum
products.

But,
according to the MPC, notwithstanding these developments, the threat of
inflationary pressure in the near-to-medium term remains real, and a
major challenge to government’s effort to create an enabling
environment for sustainable economic growth and employment.

On
efforts to stem systemic risks aimed at facilitating the process to set
the nation’s economy on the path of sustained recovery, Mr. Sanusi said
apart from ongoing discussions to review the universal banking model,
the CBN is asking for additional legal empowerment to intervene in the
operations of institutions not under its regulatory authority, but
whose activities are considered a threat to the financial system’s
stability.

“We
have discovered that banks are a major source of systemic risks, as a
result of their deploying huge depositors’ funds to risky activities
that are not in line with core banking business. The draft law is being
discussed with the banks and other stakeholders, and would be
fine-tuned for the Board of the CBN to give a final approval during its
meeting in May, after which the banks would be given between 18 and 24
months timeframe to migrate to the new model,” he said.

Global disconnect

Central
Banks around the world, he pointed out, have since realised the
disconnect between the tools available to the banks and the roles
assigned to them, adding that as lender of last resort, the apex bank
has the ultimate responsibility for the financial system stability.

Arguing
that the role of the CBN goes beyond being regulators, he cited the
experience in some countries like Malaysia, where their Central Bank
has been empowered to intervene in institutions they are not
regulating, if their activities have become a threat to the financial
system’s stability.

“We
are going to have discussions with other regulators to define exactly
what role the CBN has to play in dealing with institutions that can
pose a potential risk to the nation’s financial system’s stability,
even if they are not directly under the supervision of the CBN. We are
part of the global discussion on the regulatory architecture that is to
be put in place to mitigate the impact of systemic risks. This is part
of what is before the National Assembly’s agenda for the reform of the
nation’s banking sector,” he said.