Business & Economy - News - Special Focus - April 22, 2022

CBN’s impact under Emefiele transcends its core mandate

By Bassey Udo

Under the CBN Act of 2007, the core mandate of the Central Bank of Nigeria covers “the overall control and administration of the monetary and financial sector policies of the Federal Government, to ensure, among other functions, monetary and price stability; maintaining external reserves; promoting a sound financial system, and acting as Banker and economic and financial adviser to the Federal Government.”

However, a review of the activities of the Bank under the leadership of Godwin Emefiele as the governor reveals that its interventions cover beyond these core mandates to areas relating to the traditional functions of the fiscal authorities of government.

CBN governor, Godwin Emefiele

In 2015, when the CBN introduced the policy of restricting allocation of foreign exchange for the importation of certain 41 items (now 43) into the country, the Bank was concerned (like the fiscal authorities) that huge foreign exchange, that could have been used for the provision of other more beneficial services in the country, was being spent on those items the country has sufficient capacity to produce locally.

The Bank did not ban the importation of these items, like the fiscal authorities would do, but was withholding the allocation of foreign exchange from those willing to undertake the importation of these items. In that case, the Bank maintained that the importers were free to source for foreign exchange from where they could find to carry out their importation, as it would not facilitate the importation of these items that would compete with their local equivalent, and continue to take jobs away from the country’s economy.

Beyond this policy, the impact of the CBN’s interventions in the agriculture and manufacturing sectors through such schemes as the Anchor Borrowers’ Programme, Commercial Agricultural Credit Scheme and the Real Sector Support Facility have been so significant over the years.

The bulk of the rice being consumed in the country in recent years, are produced through the CBN’s Anchor Borrowers Programe, which provided money to rice farmers to expand their farms and cultivate new rice farmlands, as well as develop new processing and storage facilities. Through the programme, the huge foreign exchange that used to be spent on importation of rice was now being utilised in developing local rice production capacity.

In the power sector, the CBN’s direct and indirect intervention schemes through the Nigeria Bulk Electricity Trading Plc (NBET) have supported efforts to ensure stable electricity supply in the country.

Also, through its Power and Aviation Intervention Fund (PAIF), the CBN has boosted private sector capacity to invest in the power and aviation sectors, in addition to various facilities granted under the Nigerian Electricity Market Stabilisation Facility (NEMSF) meant to help operators settle outstanding liabilities to electricity market players as well as legacy debts by the successor companies of the defunct Power Holding Company of Nigeria (PHCN) to gas suppliers, and the Payment Assurance Facility (PAF) extended to NBET to settle invoices of electricity generation companies (GENCOs).

The CBN’s policy under the Solar Connection Intervention Facility has been complementary to the Federal Government’s effort towards providing affordable electricity to rural dwellers through long-term low-interest credit facilities to the Nigeria Electrification Project (NEP).

Despite all these interventions, no other period has the CBN’s impact been felt more than during the recent global crisis triggered by the coronavirus pandemic. CBN was in the vanguards of the government and private sector initiatives to curtail the spread of the pandemic. In alliance with a coalition of public and private sector players, the CBN mobilise funding to construct medical facilities to attend to the COVID-19 victims.

Since 2019, the Nigerian economy, like most others in the world, has been grappling with serious crises as a result of the outbreak of the pandemic.

The pandemic, which began like a health concern, soon degenerated into a global economic emergency, with the structures of most countries’ economies dislocated, resulting in unprecedented negative conditions, in terms of spiralling inflation, unemployment and economic recession.

At the time the pandemic broke out, the Nigerian economy was struggling to maintain a fragile growth rate, with gross domestic product (GDP), which is the aggregate value of goods and services in the economy over a period, at about N39.6 trillion in nominal terms in the fourth quarter of 2019.

With COVID-19, movement of persons, goods and services were restricted, as transportation systems were significantly disrupted. Nigeria, whose economy depends on trading and exporting of crude oil as her major commodity, was severely impacted, as the price crashed at the international crude oil market.

It was easy for the country’s fragile economy to be pushed over the economic precipice into recession, after two consecutive quarters of contractions in her GDP, the first time since it struggled to emerge from a similar experience in 2016.

As a result of the abnormal economic conditions due to the pandemic, the Emefiele-led CBN unveiled a policy that allowed the Bank to undertake various interventions beyond its core mandate, to cushion the impact of the pandemic on the people, families and businesses.

To ensure that these additional responsibity it imposed on itself did not affect its capacity to deliver on its core mandate, to achieve continued stability of the financial system and build a resilient economy, the CBN moderated its monetary policy to either increase liquidity from the country’s reserves, by loosening its monetary policy, to encourage borrowing to stimulate economic growth, fight inflation and recession, or tighten monetary policy, to increase excess reserve and discourage borrowing, to fight demand-pull inflation.

Prior to the period of the pandemic, the CBN retained the monetary policy rate (MPR) at 12 percent; cash reserve ratio (CRR) at 22.5 percent; liquidity ratio at 30 per cent, while the asymmetric window was maintained at +200 and -500 basis points around the MPR, to allow for greater flexibility in the inter-bank foreign exchange market structure and to retain a small window for critical transactions.

MPR is the benchmark interest rate approved by the CBN for lending to commercial banks against which other lending rates in the economy are pegged as an instrument to moderate inflation.

CRR represents the share of a bank’s total deposit allowed by the CBN to be maintained as cash reserves, while liquidity ratios measure a bank’s ability to pay debt obligations and its margin of safety and solvency.

Prior to the pandemic, during the economic recession, the CBN raised the controlling monetary policy instruments, with the MPR adjusted upwards by 200 basis points, from 12 to 14 percent, to mop up excess liquidity and discourage more borrowing. The CRR was retained at 22.5 percent, Liquidity Ratio at 30 percent, and the asymmetric window at +200 and -500 basis points around the MPR.

Basically, CBN’s monetary policy during the pre-COVID-19 period was aimed at stimulating growth, while maintaining inflation within a tolerable threshold.

With COVID-19, the Monetary Policy Committee (MPC) of the CBN, under the Chairmanship of the CBN governor, Godwin Emefiele, understood that a challenging period like that required more than an ordinary attention to maintain stability of the financial system and ensure a strong economy.

Accordingly, the MPR was adjusted downwards by 50 basis points, from 14 percent to 13.5 percent in March 2019, at a time the impact of the pandemic had started to take its toll on the country’s economy. The objective was to reflate the economy and drive organic growth in the system.

For 15 consecutive meetings, the MPC retained the monetary policy parameters at the prevailing levels till March 2019.

In January 2020, as the impact of the pandemic was biting harder, stifling further the growth of the economy, the CBN intervened, with the adjustment of the CRR, from 22.5 percent to 27.5 percent, to encourage the banks to open its reserves and make more liquidity available for businesses as loans to grow their operations. All other parameters were left unchanged.

In May 2020, at the peak of the pandemic, when crude oil price at the international market crashed to less than zero, the CBN again adjusted the MPR to 12.5 percent, to make borrowing from banks more affordable for businesses.

In June 30, 2020, as part of its mandate, the CBN, following concerns over the need to strike a balance between liquidity, deposit-to-lending ratios and checking non-performing loans, kept Loans-to-Deposit Ratio (LDR) at 65 percent, against the 60 percent announced at the end of September 2019.

In September 2020, the MPR was further reduced by another 100 basis points from 12.5 percent to 11.5 percent, a level it has remained, along with other key monetary policy parameters, till date.

Since the outbreak of COVID-19, the interventions in the country’s economy by the Emefiele-led management at CBN, has shown that the role of the apex bank, particularly in periods of national crisis, transcends its normal core mandate.

At the onset of the COVID-19, the CBN articulated a comprehensive response to the crisis, to support households, businesses and financial institutions, to cushion the adverse economic impact of the pandemic.

Apart from a one year extension moratorium for outstanding principal repayments on all its intervention facilities from March 2020, the CBN approved the reduction of the interest rate on all its intervention facilities from nine to five percent per annum, and created a N50 billion targeted credit facilities through the NIRSAL Microfinance Bank for households and small- and medium-sized enterprises (SMEs) badly hit by the pandemic, including hoteliers, airline service providers, health care merchants.

Also, the CBN opened a credit support line for pharmaceutical companies, hospitals and healthcare practitioners planning to expand or open their drugs manufacturing plants, build hospitals, or health facilities in Nigeria.

Beyond these, the CBN expanded the scope of its existing interventions to the agricultural and manufacturing sectors in the country to cater for more beneficiaries in other secrors of the economy.

Again, the CBN granted regulatory forebearance to all Deposit Money Banks in the country, to allow them restructure the tenor and loan terms for businesses and households most impacted by the pandemic in key sectors of the economy, including oil & gas, agriculture, and manufacturing.

To strengthen its LDR policy in growing credit to the economy and reducing interest rates, the CBN further supported industry funding levels to maintain DMBs’ capacity to direct credit to individuals, households, and businesses, in addition to fresh incentives to encourage extension of longer tenured credit facilities.

As Banker to the Federal Government and lender of last resort, the CBN equally provided liquidity support to the government where necessary.

To help restructure the Nigeria
Commodity Exchange (NCX), the CBN is currently working with the Nigeria Sovereign Investment Authority (NSIA) and
Africa Finance Corporation (AFC), to invest about N50 billion in the sub-optimally performing to revamp its operarions and make it live up to its primary responsibilities.

Apart from strengthening the Exchange, to make it a strong platform for the sale of agricultural commodities produced as a result of the various interventions of the Bank, a fully functional commodities market would create job opportunities for the economy.

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