CBN’s Unconventional Policies As Paradigm Shift

February 1, 2021
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Apart from its widely known core mandate of ensuring monetary and financial system stability; issuance of legal tender in Nigeria; promoting a sound financial system; and acting as Banker and providing economic and financial advice to the federal government, many do not know that the Central Bank of Nigeria (CBN) also has the key responsibility of development financing.

That explains why many – including those who should know – have not hid their discomfort with the resolve of the apex bank to contribute to the financing of developmental projects through its targeted interventions in the various sectors of the nation’s economy. CBN’s interventions are aimed at diversifying the economy, creating employment opportunities, tapping into areas where Nigeria has comparative advantage for production of various farm produce like rice, cassava, palm oil, cotton, tomato in commercial quantity; and even the information technology and creative sectors for economic growth and productivity.

Section 3.2.12(h) of the CBN monetary policy circular No. 38 for the 2010/2011 fiscal years noted that infrastructural development remains grossly inadequate relative to the nation’s requirements due to lack of funds. To address this challenge, the Central Bank of Nigeria established the Infrastructure Finance Office. The mandate of the Office is to, among others, evolve a sustainable financing framework to stimulate long-term financing for infrastructure development in the country.

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The Central Bank has been under series of unwarranted attack for delving into such development enhancement areas. Those who belong to that class accuse the CBN of abandoning its core mandate for areas that are supposed to be the ‘exclusive’ preserve of the fiscal authorities. The CBN management under the leadership of Governor Godwin Emefiele has simply shown how monetary authorities can cooperate with the fiscal arm of government to bring about the desired development.

Development financing is one of the requirements for sustainable economic growth in any economy. The supply of finance to various sectors of the economy will promote the growth of the economy in a holistic manner and this will make development, welfare improvement to proceed at a faster rate. The Central Bank of Nigeria development finance initiatives involve the formulation and implementation of various policies, innovation of appropriate products and creation of enabling environment for financial institutions to deliver services in an effective, efficient and sustainable manner. The initiatives are mainly targeted at agricultural sector, rural development and micro, small and medium enterprises.

While the public is made to believe that the CBN has engaged in paradigm shift from its core monetary policy mandate, available records have shown that the intervention of the CBN in the various sectors of the economy, including agriculture, power, youths and sports development, the creative sector and education has recorded tremendous success, helping to buoy the economy above the mucky waters of recession and poor growth.

In order to grow and diversify the economy, the government must necessarily be innovative in its monetary policies as the conventional economic tools alone are not sufficient to address factors limiting economic growth. Some of the policies taken by the monetary authorities include encouraging local production by imposing high tariff and levies on imported goods, expressly excluding some from access to foreign exchange official window, increment of Loan to Deposit Ratio (LDR) of banks to 65 per cent, thereby encouraging credit to key sectors of the economy.

The CBN has implemented several intervention schemes in the agriculture and manufacturing sectors aimed at boosting employment generation and wealth creation, reducing Nigeria’s dependence on imported food items, conserving her foreign exchange earnings, and spurring economic growth. These interventions in the agricultural sector, particularly the Anchor Borrowers’ Programme (ABP) and Commodity Development Initiative (CDI), sought to strengthen key agricultural commodities’ value chains, enable improved productivity in the agricultural sector, and increase sourcing of inputs locally by stakeholders in the manufacturing sector. These programs have also helped to improve our self-sufficiency in the production of key staple items, which is in line with the government food security objectives. Already, the CBN is initiating efforts to reposition the Nigerian   Commodities Exchange into a commercially viable Platform in Nigeria for delivering efficient pricing of Nigeria’s Agriculture produce among others.

The Bank’s total financial disbursement under its various interventions amounted to N2 trillion as at January 2021. Under its Anchor Borrowers’ Programme, the cumulative sum of N554.63 billion has been disbursed to 2,849,490 beneficiaries since inception out of which N61.02 billion has been allocated to 360 farmers during the dry season among others.

It was the CBN’s deputy Governor in charge of corporate services Mr Edward Adamu who said last year that “These unconventional monetary policy initiatives have been premised on ensuring credit delivery to critical sectors of the economy. This has informed the directive to Deposit Money Banks to maintain a minimum Loan to Deposit Ratio (LDR) of 65 per cent by the end of December 2019.

“The Bank is also creating the necessary eco-system to inculcate a better credit culture among Nigerians. Though we adopted unconventional or heterodox monetary policies, they were, however, well thought through and have been yielding significant gains for the Nigerian economy.”

The Bank has undertaken some steps to improve the economy in no distant time. It took critical and verifiable steps that ensured that the Nigerian economy did not spill into major financial crisis in the face of the global economic ravaging coronavirus pandemic. Specifically, it took steps to increase the flow of credit to critical sectors of the economy in order to enable faster recovery of the system. CBN, though not happy with the fact that such commendable efforts were not being appreciated by some critical stakeholders in the country is, however, forging ahead with its policies and plans in the hope that its successes will justify the methods adopted so far.

Those who accuse the CBN of abusing its functions obviously failed to realize that access to credit is listed among the three major challenges faced by farmers and businesses in Nigeria. For instance, the CBN’s Anchor Borrowers’ Programme which was launched in 2015 to assist small scale farmers to increase the production and supply of feedstock to agro-processors with the aim of creating an ecosystem to link smallholders to processors has resulted in the cultivation of thousands of hectares of land and created hundreds of direct and indirect jobs.

The outbreak of COVID-19 has greatly impacted on countries across the world, resulting in a significant downturn in the global economy, including Nigeria’s. With these disruptions, the Nigerian economy could have faced a major food crisis, but for the government’s intervention programmes in the agriculture sector, thanks to the unconventional measures that were taken by the apex Bank.

Some of the steps taken so far include the one year extension of a moratorium on principal repayments for CBN intervention facilities; strengthening of the Loan to Deposit ratio policy, which has resulted in a significant rise in loans provided by financial institutions to banking customers and the fact that loans given to the private sector have risen by over 21 percent over the past year.

Other efforts taken include: creation of N50 billion target credit facility for affected households and small and medium enterprises through the NIRSAL Microfinance Bank; creation of a N100 billion intervention fund in loans to pharmaceutical companies and healthcare practitioners intending to expand and strengthen the capacity of our healthcare institutions; creation of a research fund, which is designed to support the development of vaccines in Nigeria.

A N1 trillion facility in loans was created to boost local manufacturing and production across critical sectors; while regulatory forbearance was granted to banks to restructure loans given to sectors that were severally affected by the pandemic; mobilization of key stakeholders in the Nigerian economy which led to the provision of over N23 billion in relief materials to affected households, and the setting up of 39 isolation centres across the country.

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 second quarter of the year.

The Nigerian economy is not immune from the consequences from the outbreak of the pandemic given the over 65 per cent drop in commodity prices; disruptions in global supply chains and the unprecedented outflow of over $100 billion of debt and equity funds from emerging markets between March and May 2020; in addition to the impact of the lockdown on economic activities.

There has been an over 60 percent reduction in revenues due to the federation account, with 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.

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