Extraordinary Measures Were Taken To Stabilise Economy From Extraordinary Shock, CBN Replies NESG

The Central Bank of Nigeria (CBN) has rebuked the Nigerian Economic Summit Group (NESG) over the group’s statement questioning the actions taken by the apex bank on foreign exchange, intervention loans, and some other matters.

In a statement on Tuesday, the NESG had expressed concerns over the foreign exchange transactions, disbursement of intervention loans and price fixings “without appropriate policy clarity” by the CBN.

Noting that this can be subject to abuses, manipulations, it urged appropriate authorities to properly review this policy to “restore credibility into our financial sector.”

The private sector-led think-tank also stated that despite the budgetary allocations and huge sums of money disbursed by the CBN through the Anchor Borrowers’ Programme, a huge gap remained in meeting the food requirements, resulting in increasing hunger among the Nigerian populace.

Responding through a statement by its Director, Corporate Communications, Isaac Okorafor, the CBN accused the NESG of launching a “false alarm.”

It noted that the “false alarm” raises serious credibility questions on the actions of the group, as its comments “significantly harmed the credibility of the Governor and the CBN as an institution.”

The apex bank, while acknowledging the negative impacts of the COVID-19 lockdown measures on majority of economies, said the Nigerian economy was not immune to these crises given the over 65 percent drop in commodity prices; disruptions in global supply chains and the unprecedented outflow of over $100bn of debt and equity funds from emerging markets between March and May 2020.

It went on to list the “extraordinary measures” it took to stabilise the nation’s economy from “extraordinary shock.”

“These activities resulted in an over 60 percent reduction in revenues due to the Federation Account, a significant drop in foreign currency inflows, which led to downward adjustments in the naira/dollar exchange rate and a rise in inflation due to the exchange rate pass through effect of imported inflation,” the bank said.

“The Central Bank of Nigeria like other Central Banks across the world had to embark on extraordinary measures in order to stabilize the economy from an extraordinary shock. We took steps to increase the flow of credit to critical sectors of the economy, in order to enable faster recovery of the economy. We also sought to prevent the economic crisis from spilling into a major financial crisis by taking the following actions;

“i. A 1-year extension of a moratorium on principal repayments for CBN intervention facilities;

“ii. Strengthening of the Loan to Deposit ratio policy, which has resulted in a significant rise in loans provided by financial institutions to banking customers. Loans given to the private sector, have risen by over 21 percent over the past year.

“iii. Creation of NGN 50 billion target credit facility for affected households and small and medium enterprises through the NIRSAL Microfinance Bank;

“iv. Creation of a NGN100 billion intervention fund in loans to pharmaceutical companies and healthcare practitioners intending to expand and strengthen the capacity of our healthcare institutions;

“v. Creation of a research fund, which is designed to support the development of vaccines in Nigeria.

“vi. A N1 trillion facility in loans to boost local manufacturing and production across critical sectors;

“vii. Regulatory Forbearance was granted to banks to restructure loans given to sectors that were severally affected by the pandemic.

“viii. Mobilization of key stakeholders in the Nigerian economy, which led to the provision of over N23bn in relief materials to affected households, and the setup of 39 isolation centres across the country.”

The CBN stated that the effect of these measures which included provision of palliatives to individuals affected by the pandemic, increase in access to credit to critical sectors of the economy that are either high employers of labour or have the ability to create jobs at a fast pace, helped to contain a significant decline in GDP growth in the 2nd quarter of the year.

The apex bank noted that it also felt compelled to let Nigerians know that in spite of the cordial and open relations between both organisations, “the NESG could have raised its allegations directly with us but never did.”

“Instead they chose to release a Press Statement, having leaked its content to a leading Business Newspaper in the country. Let us now turn to the specifics of their diatribe,” it said.

“On the CBN’s development finance activities, we are comforted by the NESG’s reluctant admission that many Central Banks around the world are also engaging in similar actions.

“The CBN engaged in development finance in order to address the credit needs of the sectors critical to improving livelihoods, reducing poverty, and promoting inclusive growth. These goals have become doubly important in light of the significant shocks to the economy following the ongoing COVID-19 pandemic.

“In pursuit of transparency, the CBN usually publishes disbursements made under these activities in our Economic Reports. Although the bourgeoises atop the NESG may not feel the impact of the Bank’s development finance activities, many ordinary Nigerians, including smallholder farmers, households, and medium-scale entrepreneurs across the country know better.

“As encapsulated in our most recent monthly economic report published on the Bank’s website, a total of N38.11 billion was disbursed as loans to 44,458 beneficiaries through the NIRSAL Microfinance Bank (NMFB).

“This number has risen to N59.12 billion; supporting to 103,189 beneficiaries as of August 2020. It is important for the NESG to note that our intervention programmes in the agricultural sector were a key contributor to the resilience of the agricultural sector during the crisis, as the sector experienced positive growth of 1.6 percent in the second quarter of the year despite the lockdown.”

The bank also noted that the food export restrictions by some countries could have made the Nigerian economy face a major food crisis, but for the government’s intervention programmes in the agriculture sector.

“As the NESG may be aware, as a result of the COVID-19 pandemic, Vietnam, Cambodia, India, and Thailand placed export restrictions on the exports of critical food items, including rice and eggs. With these disruptions, the Nigerian economy could have faced a major food crisis, but for the government’s intervention programmes in the agriculture sector,” it said.

The CBN also defended its lending process, saying recipients of intervention funds from CBN go through “an expansive due diligence process” through participating financial institutions (PFI), following which an additional assessment process is embarked upon by the CBN before disbursements are provided.

“The PFIs expend extensive due diligence on these intervention loans as the risk of default lies with them,” it said.

The NESG had also expressed concerns about certain provisions of the “repealed and re-enacted” Bank and Other Financial Institutions (BOFIA) Act 2020 recently passed by both chambers of the National Assembly, and in the process of being transmitted to President Muhammadu Buhari for assent. It said the bill contains certain provisions that breach the provisions of the Nigerian constitution, confers immunity on CBN officials and exempts actions by the CBN from judicial review.

Responding, the CBN said the group’s claims stemmed from “total ignorance or malicious intent.”

It noted that the bill does not purport to confer immunity on the Governor of the CBN like that which obtains for State Governors, rather it seeks to protect the Federal Government, the CBN and their respective officials against adverse claims for actions or omission in good faith exercise of powers under BOFIA and other specified statutes.

On border closure, the apex bank expressed its disappointment, noting that the NESG “has not shown any tendency to deeply interrogate the real reasons for the closure.”

“While the CBN is not opposed to its reopening, we must never forget the real reason why that border was shut in the first place: significant economic sabotage involving smuggling of many fake products, drugs, small arms, and other goods,” it said.

“How can a Nigerian farmer struggle for months to plant, cater, and harvest their crops only to find that those crops cannot attract good prices because of smuggled products from across our borders?

“While the Federal Government is doing its best to tackle these issues and reopen the border, we must bear in mind that border issues require cooperation by other countries.

“But if these countries, given their huge benefits from a rigged system, deny there is even a problem, how can Nigeria reopen the border without resolving these matters?”

With respect to foreign exchange, the CBN said it operates two windows: wholesale and retail.

“In the wholesale window, banks are allocated FOREX weekly, which is meant to be allocated to their customers at their discretion, reflecting customer size and distributive efficiency, for final sale to parents paying school fees, patients settling medical bills abroad, SME traders importing small-scale inputs and raw materials, and general travelers for business and personal trips,” it said.

“The CBN also allocates a certain amount of FX to licensed BDCs per week, who resell to small-scale users. In both categories, the CBN does not know the final buyers of this FX. In the retail window, banks submit a detailed list of applicants who are then allocated foreign exchange based on availability.

“Given that these submissions are first scrutinised by the banks and are accompanied by the provision of significant documentation, we do not understand the extra transparency being called for by the NESG. Based on very limited information and cross-country exposure, the NESG refers to the CBN’s recent directive, which simply sets a floor on saving rates as ‘price fixing’.

“Given that in an ideal economic textbook/theory, saving should be equal to investment, we expected total deposits should closely mirror total loans. Yet, over the past several months, we have noticed an increasingly large gap between total deposits in the banking system and total credit to the economy. While total deposits stood at about N25 trillion in January 2020, total loans stood at N17 trillion. As of August 2020, while total deposits have increased to N29.7 trillion, total loans were only N19 trillion.

“Many rich cooperates have simply been content with saving their cash balances and collecting huge interest payments, rather than expanding their investment, which should lead to hiring more people and producing more goods. In other to forestall a continuation of this trend, the CBN had to act to discourage these practices for the good of the economy.

“In other words, the rationale for moving to reduce the saving rates by banks is actually to encourage more lending. We also need to note in light of COVID-19 and to encourage more investments, many Central Banks have cut their saving rates to nearly zero.”

The CBN accused the leadership of the NESG of seeking “cheap popularity.”

“Although the NESG, under its current leadership, has fallen short of its own standards and become a shadow of its old self, we believe there are better ways to resuscitate the Group’s brand other than through cheap popularity and tarnished attention using ambushed press statements made up of contrived allegations,” it said.

“Given that the NESG should know better, we believe that these allegations are reflective of sinister motives and malicious intent.”

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