Addressing journalists at the end of this year’s MPC meeting in Abuja, CBN Governor, Sanusi Lamido Sanusi, said the erosion of the fiscal buffers through the depletion of the ECA has further exposed the economy to vulnerabilities, while the fall in oil revenue has left capital inflows as the only source of external reserves accretion.
He called on the fiscal authorities to rebuild buffers in the excess crude account, saying this could be done by blocking fiscal leakages in the oil sector and increasing oil revenues.
“Clearly, the major risk on the fiscal side at present is not one of escalation of spending, but loss of revenue from oil exports,” Sanusi warned.
He said the MPC resolved to “keep the Monetary Policy Rate (MPR) at 12 per cent +/- 2 per cent; private sector Cash Reserve Ratio (CRR) at 12 per cent; public sector CRR at 50 per cent and liquidity ratio at 30 per cent.”
He said the Committee formally adopted an inflation target of 6-9 per cent in 2014, reaffirming its commitment to move Nigeria firmly into being a low-inflation environment, noting that, while Federal Government spending overall this year has not been significantly higher than that of last year, oil revenues have continued to decline in spite of the relative stability in oil price and output, when compared with preceding years.
As a result, Excess Crude savings have fallen from about $11.5 billion at year-end of 2012, to less than $5 billion as at November 14, this year.
“External Reserves have remained in excess of $45billion only because of a massive inflow in portfolio funds. The implication of this is that financial markets are extremely fragile and susceptible to external shocks,” Sanusi said.
According to the CBN governor, the Federal Government debt “has also risen phenomenally along with its deposits at the deposit money banks, making the government a net creditor to the system. This underscores the urgent need for immediate implementation of the Treasury Single Account. The continued delay in returning government accounts to the central bank is adding to the huge cost of government debt due to poor cash flow management.”
MPC noted that the increase in external reserves to $45.37 billion as at November 15, 2013, represented an increase of $1.26 billion or 2.85 per cent above the level of $44.11 billion at end- September 2013.
External reserves, he disclosed, increased by $0.95 billion or 2.14 per cent on a year- on-year basis over the $44.47 billion at end-November 2012. MPC, he said was disappointed at the low rate of reserve accretion in spite of strong oil prices which is a result of the absence of fiscal savings.
The MPC also noted that the Asset Management Corporation of Nigeria (AMCON) is expected to reduce its debt by N1 trillion by next month. He said the CBN has directed that AMCON redeem its bonds for cancellation by exchanging them for Federal Government of Nigeria (FGN) Treasury Bills on its books.
Consequently, the only impact of the repayment Sanusi said is that the Balance Sheet of AMCON (and the contingent liability on the FGN from its guarantee of AMCON Bonds) will shrink by N1 trillion.
This, he noted is positive for the economy and the credit rating of the FGN and the banking industry. Its impact on the markets he explained “will be minimal given that only AMCON’s Balance Sheet is affected significantly and AMCON is not a player in these markets.”
Also the committee has expressed concern at the massive depletion of the Excess Crude Account (ECA) and called on the Fiscal Authorities to rebuild buffers in the excess crude account.