MPC: Aligning fiscal, monetary policy for economic growth

The benefits of collaboration in any human endeavour cannot be over-emphasised. Every part jointly fitted together produces the whole.Monetary policy affects financial conditions and the level of bank reserves. Whereas, fiscal policy can put money directly into or out of people’s pockets. Without fiscal policy as a tool to fight inflation, the federal government is working with one hand tied behind its back.The fiscal approach is anchored by the Federal Government whose role is mainly to moderate the excesses of other operators in the economy, and provide law and order and enabling operating environments.The Central Bank acts alone when it hopes that its policies would change the economic dynamics without any input from the fiscal side.Fiscal policy can slow spending directly by raising taxes or reducing government direct payments without necessarily having the intermediate step of raising the unemployment rate.Modest upfront fiscal contraction would reduce the cumulative amount of monetary tightening necessary, thereby improving the odds of avoiding recession.In this regard, analysts opine that the CBN must not operate in isolation, but collaborate with fiscal authorities to achieve sustainable economic results. Ineffective policiesMost economic policies were not as effective as they ought to be during the last administration due to the lack of collaboration on the part of fiscal and monetary authorities as everyone seems to be running their ‘own thing’ as it were.While the Finance Ministry appears to be focused only on borrowing from all possible quarters and increasing tariffs to raise more revenue for the government, the CBN was preoccupied with shielding the Naira from unnecessary pressure through rampant importation of items that could have been produced locally, thereby depleting the foreign reserves and spiking exchange rate.Analysts note that one of the dilemmas of Nigeria is fiscal indiscipline that is seen in the actions of the political office holders. In the last dispensation, while the CBN was trying to grow the economy through expansionary policies targeted at increasing capital flows (or credit) to the real sector, the fiscal authorities, on the other hand, were raising taxes on many items that affect their activities, which the CBN was trying to expand.And that was why at every opportunity, suspended CBN Governor, Godwin Emefiele always called for an alignment between fiscal and monetary policies.According to Emefiele, the country’s monetary and fiscal authorities must “collaborate and work in harmony to accelerate Nigeria’s economic development even as he added that “finding a sustainable solution requires a broadened participation of colleagues from the fiscal side.”Speaking at the 149th meeting of the Monetary Policy Committee of the Central Bank of Nigeria (CBN), the Apex Bank’s Acting Governor, Folashodun Shonubi, said there was a need for fiscal and monetary authorities to align together to be able to address present economic challenges.Reading the communiqué at the end of the two-day meeting, Shonubi noted that subsidy removal, exchange rate liberalization and disbursement of palliatives, would have pass-through effects on inflation. He therefore, called “monetary and fiscal authorities to sustain collaboration towards addressing the inflationary pressure and incentivize domestic investment to reduce unemployment and boost output growth.The Monetary Policy Committee “…enjoined the Federal Government to continue to explore policies to improve investor confidence in the Nigerian economy and pave the way for foreign and domestic investments.“Members emphasized the need to attract investments, particularly, to auto manufacturing, aviation, and rail industries to boost non-oil revenues.”Experts have continuously argued that all these can only happen when both of them work in harmony. For instance, from time to time, the Federal Government comes up with its fiscal policies based on national economic philosophy and objectives, to aid or readjust the economy.CBN then makes monetary policies to ensure availability of money at the right cost, adequate volume and appropriate type to facilitate the cost effectiveness of production and trade. However, we saw monetary authority make incursions repeatedly into the economic policy territory hitherto exclusively reserved for the fiscal authority in Nigeria.This has then made the CBN a punching bag for every frustration in the economy in regards to monetary and fiscal balancing of macroeconomic issues. Breaking from the pastIn trying to break away from the past mistakes, President Bola Tinubu quickly appointed seasoned economist Wale Edun as his Special Adviser on Monetary Policy. The objective was to have the two sides coming together to align policies before they become public document.And true to type, Nigerians did see it in the MPC decision as the monetary policy rate hike was by 25 basis points contrary to what analysts and industry players had projected.In arriving at the decision, the MPC considered the outlook for the domestic economy with the policy options to either hold or hike the policy rate to offset the moderate increase in headline inflation.With headline inflation still on the rise due to the effect of fuel subsidy removal and the naira float which is driving the prices of goods and service upwards, the Apex Bank new that raising rates like in previous times will be counter-productive to what the monetary authorities wanted to achieve with the policy reforms that has been embarked upon by the fiscal authorities.Knowing that when the palliatives begin to flow, there would be much liquidity in the system, the Committee had to be proactive in line with current thinking.According to the CBN Governor, “Considering the option to hold, the Committee reviewed the impact of the continued rise in inflation on various macroeconomic variables, noting the potential dampening effect on output growth. Members agreed unanimously that the previous series of rate hikes had indeed greatly moderated the pace of price increases.“The option to continue to hike the policy rate, albeit moderately, also presented a strong alternative. This is premised on the expected liquidity injections into the economy from the recent policy developments and the likely impact on inflation.“The Committee remained cautious in arriving at a policy decision as Members noted the need to continue to support investment which will ultimately lead to the recovery of output growth. The balance of these arguments thus leaned in favour of a

Angry protesters pull down NASS Complex gate

*We’ll address your demands within 7 days- Senate The members of the organised Labour Unions protesting the removal of fuel subsidy on Wednesday pulled down the gates of the National Assembly in Abuja. The protesters numbering over 5,000, first converged at the Unity Fountain, Abuja, from where they matched to the Federal Ministry of Justice before proceeding to the National Assembly. However, following the failure of the security officials to adhere and open the gate to them, the angry protesters pulled down the gates and thronged into the assembly complex to vent their anger. The organised labour comprising the Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) are currently protesting in the Federal Capital Territory, Abuja. Meanwhile, the National Assembly (NASS) has pledged to review and address the organised Labour demands within the next one week. The Senate President, Godswill Akpabio said this when organised labour took its mass protest to the National Assembly Complex where it submitted a list of its demands on Wednesday in Abuja. The mass protest was organised by the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC) over anti-poor and workers policies of the Federal Government. The protesters carried placards with inscriptions such as; “We condemn increase in school fees, “Stop importation of Petrol, Revive the Refineries,” and” Increase in price of fuel responsible for inflation, poverty among others. Akpabio, who was represented by Senate Chief Whip, Ali Ndume, assured the protesting workers that NASS was in support of their struggle. “We have keenly followed what is going on when we realized that there was a breakdown in the discussions between the Presidency and the NLC. I want to assure you that we will find a permanent solution to this. “Please give us one week and we will make progress and if you are not satisfied with the progress we are making, then you can take further action,” he said. He also said that a committee had been set up to look at the demands of organized labour. He added that by the close of the day or tomorrow, they will call the first meeting with labour to start the discussions and the engagements would continue. “We will do our best as your representatives to come out with solutions acceptable to you and realistic enough,” he said. Ndume also assured that the letter which contained their demands and terms of reference would be handed over to the leadership of the senate. Earlier, NLC President, Mr Joe Ajaero said the nationwide mass protest was to express workers’ frustrations and grievances about the anti-poor policies that had brought hardship to Nigerians. He added, ”For almost two months now, we have been engaged in discussions without fruitful motion. We got frustrated.” He, however, said that the demands of the labour include the immediate implementation of the resolutions jointly signed with organised Labour and government. Ajaero also called for the immediate reversal of all anti-poor policies of government including the recent hike in PMS price, school fees and VAT. He also urged the Federal Government to fix the country’s local refineries in Port Harcourt, Warri and Kaduna. According to him, release the eight months withheld salaries of the university lectures and workers. “Accord appropriate recognition and support to the Presidential Steering Committee and the work of its Subcommittees. “Also put a stop to in human actions and policies of government,” he added. Also speaking, Mr Festus Osifo, TUC President called for the reduction in the cost of governance. Osifo said that the governments was “insensitive to the plight of the masses.” “The Nigerian masses have been battered. They have gone through excruciating pains but in all of this, we have not heard what the President has to say about the cost of governance. “We want you in the National Assembly to show sacrifice. We want you to cut down your budget. “We want you to buy Nigerian made cars and not imported vehicles because you are creating jobs over there and importing poverty here. “We want you to show leadership because we elected you to work for us,” he said.

Nigeria’s inflation rate rises to 22.41% in May

Nigeria’s headline inflation rate increased to 22.41 per cent in May 2023, relative to April 2023 headline inflation rate which was 22.22 per cent. According to the National Bureau of Statistics in its CPI and Inflation Report May 2023, it represents a 0.19% point when compared to April 2023 headline inflation rate. Similarly, on a year-on-year basis, the headline inflation rate was 4.70% points higher compared to the rate recorded in May 2022, which was (17.71%). More details later…