....things are already hard as HARD can be, so how much more can we endure???
The governor of the Central Bank of Nigeria has begged Nigerians to prepare for the economic hardship that will soon come because of the lingering crash in crude oil prices.
Nigerians have been warned to brace up for the hard times ahead as oil revenue is predicted to hit a record low. The Monetary Policy Committee of the Central Bank of Nigeria gave the warning on Tuesday warned.
The committee observed that while the period of low oil prices, which occurred in 2005, lasted for a maximum of eight months, the current situation was expected to continue over a longer period of time.
The communique was read out after the first meeting for the 2016 fiscal period in Abuja, by the CBN Governor. Mr. Godwin Emefiele.
Following the decline in crude oil prices from a peak of $114 barrel in July 2014 to $30.25 per barrel on Tuesday, the CBN governor said since oil prices had been on a steady decline, certain trade-offs would have to be envisaged and accommodated.
He said, “The committee observed that the last episode of low oil prices in 2005 lasted for a maximum period of eight months. However, the current episode of lower oil prices is projected to remain over a very long period.
“Consequently, it is imperative to brace for a longer period of low government revenues from oil sources, which would necessitate hard and uncomfortable choices as the economy transits to more sustainable sources of revenue, consistent with the economic realities and strategic objectives of the country. In the circumstance, certain trade-offs must be envisaged and duly accommodated.”
He said other alternatives must be explored if the nation must be saved from the crash in oil prices. The governor said the need for consistently sound and coordinated macro economy policies had become inevitable.
He added, “In the medium term within which monetary policy is cast, the need to allow policy to produce the desired outcomes becomes a key consideration in the policy mix.
“Consequently, the bank is fine-tuning the framework for foreign exchange management with a view to ensuring a more effective and liquid foreign exchange market, taking into account Nigeria’s strategic development priorities, with the policies being designed within an environment of regularly ensuring consistency with monetary and fiscal policies.”
“The committee acknowledged the continuous liquidity surfeit in the system stemming partly from the recent growth-stimulating monetary policy measures as well as the tendency of the banks to invest excess reserves in government securities rather than extend credit to the needed sectors of the economy.
“To this end, the committee once again urged the Deposit Money Banks to improve lending to the real sector as part of their patriotic obligations to the country, and enjoined the management of the central bank to continue to explore ways of incentivising lending to employment and growth-generating sectors, particularly the SMEs.”
When asked if the CBN would consider forcing the banks to lend to the real sector, Emefiele stated that inasmuch as it would prefer that the DMBs should increase lending to the real sector, it would be practically impossible to force them to do so due to the fact that the banks were established to make profit.
He said, “Unfortunately, the DMBs are in business to make money and we cannot regulate their interest rate. And so, it can be difficult to really force them to lend to a particular set of people. But what we can continue to do is to put in place policies that will encourage them to do so or we can continue to incentivise them by putting in place policies that will encourage them to do so.
“So, it is a free market and we cannot really compel them as it is expected. We will continue to try. This is why at the last meeting, we reduced the CRR from 25 per cent to 20 per cent. And we now insisted that liquidity that would be made available or that those banks could only enjoy the reduction if they introduce to the CBN projects that are targeted at the real sector such as manufacturing, agriculture and the SMEs.
“It is just two months since this policy (was introduced) and it is still early to assess the impact. However, we remain optimistic that the banks will heed this advice and lend to the real sector. Because this liquidity is just sitting at the CBN and until they decide to work with us on this, the funds will not be made available.”
On the introduction of the N50 stamp duty charge, Emefiele explained that the decision was taken to support the government in its bid to generate more revenue due to the drop in oil prices, adding that the nation’s external reserves currently stood at about $28bn.