The Central Bank of Nigeria (CBN) has begun closing down its special intervention fund with a pledge to collect “every kobo disbursed so far,” with inflation control taking the top priority in terms of its mandate.
The apex bank stated that it has “locked the door” to the funds as part of its gradual tapering strategy, with the exception of those that are still crucial to the economy, such as those related to small and medium-sized businesses and power.
Out of the N9.3 trillion distributed as of yesterday, N3.7 trillion have been retrieved so far, according to the monetary authority. According to Dr. Yusuf Yila, Director of Development Finance, around N5 trillion is still owed.
“Some of the loans are under moratorium. Agriculture has made way for 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.
With a recovery rate of 40%, N1 trillion from the total stimulus was given to farmers as part of the Anchor Borrowers’ Programme (ABP).
According to Yila, the Commercial Agriculture Credit Scheme (CACS) is the most successful initiative, having repaid 700 billion of the initial N800 billion in loans.
However, he allayed fears of default by stating that the majority of the funds are risk-free to the apex bank. He reassured the debtors that the Central Bank of Nigeria (CBN) will reclaim every kobo disbursed, even as it collaborates with the EFCC to set up a desk to “track the borrowers and recover the debts.”
He also stated that the apex bank would soon begin deducting the state governments’ portion from the Federation Account Allocation Committee in order to recoup budget support facilities provided to them (FAAC).
Following a strong tightening of liquidity to control inflation, the stimulus is being tapered. The benchmark was raised from 11.5 percent, where it stood in May, to 15.5 percent at the MPC meeting, the highest in over 20 years. This was the third consecutive increase in the MPR. Additionally, the cash reserve ratio (CRR) was increased by 500 basis points (bps), bringing it to 32.5%.
The type of inflation will determine whether the monetary regulator keeps raising the interest rate, according to Dr. Hassan Mahmoud, director of the Monetary Policy Department. The authority would have no other option if excessive money supply continued to be a significant inflation feeder, he stressed.
“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 acknowledged that banks would reprioritize loans and that borrowing costs, which are already edging closer to 30%, would increase. He claimed that the suffering had a favorable trade-off, as continued runaway inflation would push Nigeria into poverty and undermine the country’s economic prospects.
The director stated that the country’s food inflation is largely driven by inflation expectations, and he predicted that some of the intermediaries storing food will be forced to sell their stocks as current loans were repriced by the banks. This, he claimed, would raise the overall supply and have a favorable effect on prices.
