The Centre for the Promotion of Private Enterprise (CPPE), a leading research think-tank on Nigeria’s economy, has canvassed 11-point strategic measures to combat the rising general price level in the nation’s economy.
The Managing Director of the Centre, Dr. Muda Yusuf, in a statement issued in response to the latest Central Bank of Nigeria’s (CBN’s) monetary policy decisions taken at the end of its Monetary Policy Committee’s meeting on Tuesday in Abuja, argued that tackling the rising inflation in the country remained the most critical agenda for the fiscal and monetary authorities for now.
According to him, the outcome of the MPC meeting of 24th May 2022 was not unexpected having regard to the intense inflationary pressures, the increasing risks to price stability and the policy tightening trend by Central Banks globally since the primary mandate of the CBN is price stability.
Noting that numerous headwinds have posed significant risks to this critical CBN objective, the economic expert noted that the hike in MPR by 150 basis points to 13% by the MPC was therefore understandable.
But then, the CPPE boss expressed some concern about whether the decision would significantly impact on the inflation is a different matter since bank lending has been constrained by the high CRR, which many operators in the sector claim that effective CRR is as high as 50% or more for many banks, the discretionary debits by the apex bank, the 65% Loan to Deposit Ratio [LDR] and liquidity ratio of 30% which made lending situation in the economy already very tight.
Yusuf lamented that the Nigerian economy was not a credit driven economy, unlike what obtains in many advanced economies which have much higher levels of financial inclusion, robust consumer credit framework and strong correlation between interest rate and aggregate demand.
He listed the hey drivers of inflation in the economy as including, liquidity challenges in the forex market affecting access to manufacturing and other inputs; supply chain disruptions resulting initially from the pandemic, and now deepened by the Russian – Ukraine conflict; security concerns disrupting agricultural output, Climate change effects on agricultural production; and structural constraints affecting productivity in the agricultural value chain and manufacturing.
Others are, high transportation costs affecting distribution costs across the country; high and increasing energy cost; monetization of fiscal deficit [CBN financing of deficit] which is highly inflationary because of the liquidity injection effects on the economy; high transactions costs at the nations ports increases production and operating costs of businesses; high import duty on intermediate goods and raw materials; and aggressive revenue drive by government agencies, taking a toll on cost of production.
On the way forward in addressing the lingering inflation surge in the economy, the CPPE boss advocated that government should address the security concerns causing disruption to agricultural activities; reform the foreign exchange market to stabilize the exchange rate, reduce volatility and stimulate forex inflows; address forex liquidity issues through appropriate policy measures; and fix the structural problems to boost productivity and competitiveness of domestic firms.
Other strategic steps canvassed by Yusuf include the need for government to address the challenge of high transportation and logistics cost; reduce fiscal deficit monetization to minimize incidence of high-powered money in the economy; manage climate change consequences to reduce flooding and desertification; and ensure the restoration of normalcy and good order at the nations ports to reduce transaction costs;
In addition, he advised the government to reduce import duty on intermediate products and raw materials for industries to reduce production costs; address concerns around high energy cost; and create an investment friendly tax environment to boost investments and output in the economy.
