Stabilising Economy with Unorthodox Monetary Policy

Dike Onwuamaeze writes on the impact of the Central Bank of Nigeria’s development finance initiatives

The swift and massive shock of the coronavirus pandemic and shutdown measures to contain it have plunged the global economy into a severe contraction.

According to World Bank’s forecasts, the global economy would shrink by 5.2 per cent this year and that would represent the deepest recession since the Second World War, with the largest fraction of economies experiencing decline in per capita output since 1870.

Already, Gross Domestic Product (GDP) figures already released by countries across the world showed that a lot of economies have also slipped into recession.

For Nigeria which recorded negative GDP growth of 6.1 per cent in the second quarter of 2020, since the outbreak of the virus in the West African country, its central bank has been aggressive in deploying unconventional monetary policy tools to cushion the effects of the pandemic on households and firms.

The Central Bank of Nigeria (CBN) has explained that its aggressive deployment of unconventional policies since the outbreak of the COVID-19 has been to help manage the supply shock in the system as well as calm inflationary pressure.

CBN Director of Monetary Policy Department, Dr. Hassan Mahmud, said the apex bank’s interventions in the agriculture, manufacturing, and other sectors played a major role in moderating the level of GDP contraction country recorded in the second quarter. Even though the GDP contracted by 6.1 per cent, the projections were actually worse than that. This has been hinged on the unconventional monetary policy tools adopted by the country, given the fact that the fiscal policy space had thinned out.

“So, we need to do the interventions to manage the supply side because of the inflation number that we are seeing and also get demand to pick up.

“So, we should be seeing the benefits of all the interventions in agriculture, manufacturing, power, coming on stream. Don’t forget that these are structural issues and are challenges that have been there,” Mahmud explained.
According to him, the impact of the central bank’s intervention would be felt in the long-term.

Also, the Director, Development Finance Department, CBN, Mr. Philip Yila Yusuf, who reeled out the various development intervention initiatives of the central bank, said they were aimed at supporting the fiscal authorities.

Yusuf said the Commercial Agriculture Credit Scheme (CACS) was to fast-track food processing across the entire value chain which he said has been successful.

“We’ve disbursed over N600 billion and over N400 billion has been paid back. It was given at nine per cent interest rate, but the interest rate has been reduced to five per cent.

“Private sector players and also state governments have accessed it for either rice processing mills, cassava processing mills or to do large scale farming,” he added.

Speaking on the need for the country to be self-sufficient, he said, “because of the protectionist mode that a lot of countries are going into, there’s an opportunity for us to properly diversify into agriculture.

“So, we need to produce more, especially grains. We need to achieve national food security and we need to be able to start looking at how we can even begin to export for us to be able to earn forex, because there’s already a decline in the major forex inflow we get from oil.

“We really need to start looking at how we can ensure we have food self-sufficiency and also begin to export to earn more foreign exchange.

“We have significant land that has been unlocked and so we need also to ensure we are doing a lot of processing in-country.”

Yusuf also spoke on the Anchor Borrowers’ Programme launched by President Muhammadu Buhari in 2015, saying it has been largely successful.

According to Yusuf, without the Anchor Borrowers’ Programme, especially since the pandemic, “I can imagine what would be happening in Nigeria.”

He spoke on other development finance interventions and the funds disbursed so far by the apex bank, saying, “Once the COVID started in China, what the leadership of CBN under Governor Emefiele did was to try and create different scenarios of how we would respond to the pandemic depending on how it affects Nigeria.

“We brought out a broad stimulus package worth about N3.5 trillion across SMEs, manufacturing and healthcare because Governor Emefiele wanted activities to go on despite the lockdown, and then health, because our hospitals have not moved from basic provision of services to more advanced healthcare.

“With N3.5 trillion, the first thing we did was to put in place a N50 billion Targeted Credit Facility for households and SMEs. As I speak to you, we have disbursed N72 billion to over 120, 000 beneficiaries and Governor Emefiele has increased the fund from N50 billion to N100 billion.”

Yusuf added, “We also put in place N100 billion credit support for the healthcare sector. We provided them cheap access at five per cent, through the deposit money bank to access the N100 billion set aside. As we speak, we’ve disbursed over N44 billion to over 40 projects.

“We also looked at helping to domesticate our pharmaceutical and hospice-related activities. We also set aside N1 trillion for our manufacturing sector; that’s where we have huge, significant employment – textile, housing, food and agro-processing, etc. – and during the COVID-19 period, we have disbursed over N200 billion to a wide range of people.”

Also speaking recently, CBN Governor, Mr. Godwin Emefiele, pointed out that realising the consequences of the pandemic, the board of the central bank as well as the MPC took a unanimous decision to grant provisioning for banks.

He explained that the banks were given the opportunity that, “if for instance companies or households that are impacted by the pandemic and can’t pay their loans, that such loans should be restructured with the understanding that truly they have been adversely impacted by the Covid-19 and that they cannot service those loans.”

He added: “We also took the decision to reduce interest rates on CBN intervention facilities from nine per cent to five per cent. We also said that in order to encourage people to come back again in business, that there are those who lost their jobs, that we should able to support them through the N100 billion Targeted Facilities for Households and SMEs.

“This facility has been granted. We are talking about N500, 000 for somebody who wants to start a petty business and up to N1.5 million for some of them who are going to be undertaking some slightly higher level of business.
He stressed that presently, Nigerian banks remain sound and have not been impacted negatively by the pandemic.

Emefiele said latest central bank’s data showed that the Nigerian banking industry remains strategically strong and able to support the economy.

For instance, in June 2019, capital adequacy ratio for the banking industry was 15.3 per cent, but as at August 2020, it remained at 15.3 per cent.

Also, non-performing loans (NPLs) as at June 2019 was 9.4 per cent, but presently at 6.1 per cent. Similarly, liquidity ratio was 48 per cent in June 2019, but presently at 36 per cent, which was attributed to an increase in credit over the last 13 months of about N3.7 trillion to the economy.

In addition, Return on Equity of bank which was at 24 per cent as at June 2019, currently stands at 21 per cent; while return on bank assets which was 2.3 per cent as at June 2019, is presently at 1.9 per cent, which is still adjudged to be fair.

Total deposit of banks have risen from N22.9 trillion in June 2019, to N28.9 trillion in August 2020. Total loans have increased from N15.4 trillion in June 2019, to N19.3 trillion in August 2020.

Also, total assets have risen from N38 trillion in June 2019, to N48 trillion in August 2020. So, these for us are signs that show that as at date, the banking industry remains resilient to support the growth of the Nigerian economy.

To the Deputy Governor, Corporate Services of the CBN, Mr. Edward lamtek Adamu, the Bank is focused stimulating economic growth.

Adamu said, “I want to reiterate the strong commitment of the CBN towards supporting measures that would bring the nation from our over dependence on imported goods, so that we can create wealth, create jobs for our teaming youths and just improve lives and livelihood of Nigerians as we strive to promote a very stable financial system.

“I want to emphasis what the CBN governor has consistently said, that the central bank is committed to its core mandate of maintaining price and exchange rate stability. We are also committed to ensuring that we have a conducive macroeconomic environment for growth.

“We are committed to fostering development for an efficient credible and reliable credit system. We are committed to a very stable exchange rate and the growth of our reserves and diversifying the economy…

“We are committed to supporting the diversification through our intervention programmes and development finance in the agric sector, manufacturing sector, MSMEs because they are critical to the development of the economy.”