Prof. Mike Obadan, a member of the Monetary Policy Committee (MPC), has advised the fiscal authority to refrain from actions that would weaken the monetary authority and aggravate inflationary pressure in the face of growing recklessness and fiscal waste.
He objected to the effectiveness of monetary tools in reducing inflation in the face of several supply-side restrictions and demanded more fiscal authority actions.
According to the economist, the tight monetary policy, which has increased the monetary policy rate (MPR) to 16.5%, can only handle the inflationary pressure brought on by demand associated with “monetary growth but not the inflation emerging from other sources.”
Obadan cited insecurity and banditry, oil theft, logistical and legacy issues, an undiversified economy, and a significant reliance on imports as some of the obstacles the government must solve to improve productivity and efficiency.
The Central Bank yesterday released the statement from the November MPC meeting, which includes the observations. He cautioned his colleagues against overtightening since it could lead to a recession.
At the recent Bankers’ Committee annual retreat in Lagos, CBN Governor Godwin Emefiele also expressed concern over slowing growth and urged the government to swiftly halt it to prevent an eventual recession.
Although still positive, the rate of output growth has been declining since the previous year. From Q2’s 3.54 percent to Q4’s 2.25 percent, it sloped. Some economists have urged the monetary authority to intervene in a way that strikes a compromise between the need for growth and concerns about inflation.
Dr. Chiwuike Uba, a development economist, noted that supply-side restrictions and exchange rate volatility account for 90% of the difference between the money supply’s 10% and the country’s headline inflation rate.
The National Centre for Economic Management and Administration’s previous Director General, Obadan, stated: “Importantly, it is not certain how much rate hikes need to be applied to manage inflation. There is no guarantee that empirical estimates will be helpful, and there is no direct correlation between policy rate increases and lower inflation because there are many other extenuating circumstances that go beyond the control of monetary policy.
“So, while the monetary policy stance should remain generally tight, policy rate hike should now be moderately done while a strong appeal is made to the fiscal authority to complement the Bank’s efforts by implementing necessary bold reform measures aimed at addressing insecurity, significantly boosting revenue and foreign exchange and also ensuring fiscal consolidation.”
The professor urged the fiscal authority to refrain from taking any steps “that seem to undercut monetary policy.” He suggested that it make sure that monetary and fiscal policies are properly coordinated.
He asked the fiscal officials to aggressively mobilize non-oil revenue through new taxes, proper taxation of high-income groups, and the elimination of tax exemptions.
“Undertake fiscal consolidation to prevent the need to accumulate ways and means advances”, Obadan said, noting that fiscal consolidation involves measures that reduce fiscal deficits.
