At N53.27trn in January, Money Supply Reached Record High Amid FG Borrowings

Kayode Tokede

On the back of the federal government increased borrowing, money supply (M3) in the economy increased to N53.27 trillion in January 2023, representing a 17.87 per cent Year-on-Year (YoY) increase from N45.19 trillion reported in January 2022, the Central Bank of Nigeria (CBN) money and credit statistics has revealed.

M3 is the wide-range monetary aggregate that include; M2 (Board Money), huge time deposits, money market funds belonging to institute, repo arrangements as well as other huge liquid assets and it consists of broad money (M2) and narrow money (M1).

THISDAY analysis of the CBN statistics showed that M2 and M1 recorded an increase during the period under review.

M2 rose by 17.47 per cent YoY to N52.97 trillion from N45.09 trillion in January 2022, while M1 added increased by 12.78 per cent to N20.96 trillion in January 2023 from N18.59 trillion reported by the CBN in January 2022.

Analysts attributed the surge in money supply to the federal government’s borrowing to finance its huge budget deficit, hike in the inflation rate and numerous interventions by the apex bank.

They also said commercial banks’ lending to the private sector propelled by the Loan-to-Deposit Ratio (LDR) policy of the CBN was also a contributing factor to money supply in the domestic economy.

A financial Economist and Professor of Capital Market, Nasarawa State University Keffi, Uche Uwaleke explained that the federal government borrowings and distribution of revenue Allocation to State and Local Governments by the Federation Account Allocation Committee (FAAC) have contributed to a significant increase in money supply this year.

He added that the mounting money supply is aiding hike in the inflation rate and forcing the apex bank to hike its Monetary Policy Rate (MPR).
“The CBN has realized that the money supply is getting higher and it is the reason behind hike in MPR to 17 per cent from 14 per cent to curtail further rise in inflation rate, ” he added.

Also contributing to the huge growth in money supply in January 2023, is the increase in credit to the private sector and government during the period.
The CBN data showed that credit to the government rose significantly by 78.79 per cent to N26.65 trillion as of January 2023 from N14.90 trillion in the corresponding period of 2022.

According to CBN, credit to private sector in its YoY performance has gained 20.09 per cent to N42.25 trillion in January 2023 from N35.18 trillion in January 2022.
The vice president, Highcap securities limited, Mr. David Adnori, stated N42.25 trillion growth in credit to private sector in January 2023 demonstrated how double-digit inflation has affected nominal demand for Naira by private sector businesses, given continuing rise in input cost and the usual burden of imported inflation.

He added that, “Since this nature of demand for money may not necessarily translate to improved productivity, it follows, therefore, that economy may not also benefit in terms of additional jobs or output growth. This is just evidence of the unstable state of the macroeconomic environment in Nigeria.”
Despite severe macro-economy challenges, credit to private sector increased to N41.80 trillion in 2022, representing an increase of 19.7 per cent YoY from N34.92 trillion reported in 2021.

Speaking, the Chief Executive Officer, Wyoming Capital and Partners, Mr. Tajudeen Olayinka explained that what usually drives credit growth is demand for transaction money.

According to him, “But what one should be concerned about is the relative contribution of the sector to country’s economic growth. Since N6.88trillion credit growth to private sector has not translated to significant economic growth for Nigeria, it follows therefore that credit growth reported for 2022 was just a mere money illusion, and that what was required to trigger economic growth could be much more than the reported figure.”