Sanusi decries lack of fiscal savings amid strong oil prices

Sanusi Lamido Sanusi 120 November 2013, Abuja – The Governor of the Central Bank of Nigeria, CBN, Mallam Sanusi Lamido Sanusi, Tuesday expressed disappointment over the low rate of reserve accretion in spite of strong oil prices.

He blamed the development on the absence of fiscal savings.

Also, Sanusi maintained that the coast was not yet clear for easing of monetary policy, noting that the outlook for 2014 portends some potential headwinds that may lead to further tightening in monetary conditions.

Also Tuesday, the apex bank resolved
by a majority vote of nine to two, to keep the monetary policy rate (MPR) at 12 per cent with +/- 2 per cent.

It also left the private sector cash reserve requirement (CRR) at 12 percent as well as the public sector CRR at 50 per cent and Liquidity Ratio at 30 per cent.

Addressing journalists at the end of the two-day meeting of the monetary policy committee in Abuja, the CBN governor said the resolve to hold all rates at their current levels became necessary to consolidate the success so far achieved in attaining price and exchange rates stability; the potential headwinds in 2014; the ultimate goal of transiting to a truly low – inflation environment as well as the need to retain portfolio flows in view of the erosion of fiscal buffers.

He said the major risk on the fiscal side at present was not one of escalation of spending but loss of revenue from oil exports.

He said the bank had formally adopted an inflation target of six-nine per cent in 2014.

Sanusi, who read the committee’s communiqu, said it reiterated the need for fiscal authorities to rebuild buffers in the excess crude account by blocking fiscal leakages in the oil sector and increasing oil revenues.

He said the Excess Crude savings had fallen from about $11.5 billion as at December 2012 to less than $5 billion as at November 14.

He added the External Reserves had also remained in excess of only $45billion as a result of massive inflow in portfolio funds, with the attendant implication extremely fragile financial markets which could be susceptible to external shocks.

He said however, that “While federal government spending overall in 2013 has not been significantly higher than in 2012, oil revenues have continued to decline in spite of the relative stability in oil price and output when compared with preceding years.”

Sanusi said the committee also noted the decline in inflation and the benign outlook going into the first half of 2014.

He said: “It also noted that global monetary conditions were likely to remain loose going into Q1:2014 for a number of reasons. First, in the USA, it is clear that the incoming Federal Reserve Chairperson, Janet Yellen, does not see tapering as imminent given the on-going disputes around the budget and the weakness of economic recovery.

“In England, although recovery appears to be firmly on track, the BoE is clearly not going to consider raising rates until unemployment falls to seven per cent probably in late 2014. The BoJ is likely to continue with QE until inflation reaches its two per cent target which is a long way off, and the ECB has just lowered its benchmark rate to avert the risk of deflation. For these reasons, the committee does not anticipate any major internal or external shocks before its next meeting in January 2014.

According to him: “The MPC also noted that AMCON is expected to reduce its debt by N1 trillion in December 2013. The CBN has directed that AMCON redeem its Bonds for cancellation by exchanging them for Federal Government of Nigeria (FGN) Treasury Bills on its books.

Consequently, the only impact of the
repayment is that the Balance Sheet of AMCON (and the contingent liability on the FGN from its guarantee of AMCON Bonds) will shrink by N1 trillion.”

He said: “This is positive for the economy and the credit rating of the FGNand the banking industry. Its impact on the markets will be minimal given that only AMCON’s Balance Sheet is affected significantly and AMCON is not a player in these markets.”

– James Emejo, This Day

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