By Geoff Iyatse
[FILES] Central Bank of Nigeria Governor Godwin Emefiele PHOTO: Twitter/CBN
• N3.7 billion recovered from N9.3 trillion disbursed
• Bank in deal with EFCC to recover funds from debtors
• Budget support to state governments to be deducted from FAAC allocations
With inflation control assuming the most important aspect of its mandate, the Central Bank of Nigeria (CBN) has started winding down its special intervention fund with a promise to recover “every kobo disbursed so far.”
As part of its gradual tapering campaign, the apex bank said it has “closed the door” to the funds, except those that are still very critical to the economy such as the ones relating to small and medium-scale enterprises and power.
The monetary authority also disclosed that N3.7 trillion has been recovered so far out of N9.3 trillion disbursed as of yesterday. About N5 trillion, according to the Director of Development Finance, Dr Yusuf Yila, is not yet due for repayment.
“Some of the loans are under moratorium. We have moved from agriculture to manufacturing. So far, manufacturing, agriculture, health, exports and SMEs, have benefitted from the intervention,” Yila told media at an interactive session on facts behind the monetary policy rate (MPR) hike, which took the benchmark to 15.5 per cent on Tuesday.
From the total stimulus, N1 trillion was extended to farmers under the Anchor Borrowers’ Programme (ABP) with a recovery rate of 40 per cent achieved.
Yila disclosed that the Commercial Agriculture Credit Scheme (CACS) is the most successful among the programmes with N700 billion out of N800 billion lent paid back.
He, however, dispelled the concern about default, saying most of the funds are risk-free to the apex bank. He assured the debtors that CBN would recover every kobo given out even as it is working with the Economic and Financial Crimes Commission (EFCC) to open a desk to “chase the borrowers and recover the loans.”
He also disclosed that the apex bank would soon start recovering budget support facilities extended to state governments, by debiting their share from the Federation Account Allocation Committee (FAAC).
The stimulus tapering comes on the heels of an aggressive tightening of liquidity to moderate inflation. At the MPC meeting, the MPR was increased for the third time in a row, raising the benchmark from 11.5 per cent, where it was in May, to 15.5 per cent, the highest in close to 20 years. The cash reserve ratio (CRR) was also reviewed upward by 500 basis points (bps) to 32.5 per cent.
Director of the Monetary Policy Department, Dr. Hassan Mahmoud, said whether the monetary regulator would continue to increase the interest rate depends on the character of the inflation. If excess money supply continues to serve as a major inflation feeder, he added, the authority would be left with no other choice.
“The quantity of money in the system was too much for the economy to absorb in terms of the flow of supply. The excess money will either impact what people call too much money chasing fewer goods, which makes prices go up, or puts pressure on the foreign exchange. And as the naira depreciates, the inflation number continues to rise. Also, the interest rate could become too low and make it unattractive for investors to bring in their funds,” Mahmoud said in defence of the MPR hike.
He admitted that banks would reprice loans and that the cost of borrowing, which is already tending towards 30 per cent, would rise. However, he argued that the pain has a positive trade-off, arguing that continuous run-away inflation would pull Nigeria below the poverty level and worsen the economic outlook.
The director noted that inflation expectation is a major factor driving the country’s food inflation, projecting that some of the middlemen hoarding food items would be compelled, as banks reprice existing loans, to dump their holdings. This, he argued, would increase aggregate supply with a positive impact on prices.
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