•As CBN insists on pursuing price stability
President of African Development Bank Akinwumi Adesina said in London on Monday that Nigeria needs to coordinate its fiscal and monetary policy more closely.
The Monetary Policy Committee (MPC) of central bank has often canvassed a synergy between fiscal and monetary policies.
“I think the naira is devalued, but…monetary policy and also the fiscal policy that synchronisation, that is very very important,” Adesina said during a panel discussion at the FT Africa Summit in London, according to Reuters.
“There is a lot of pressure put on the naira”, he added.
Adesina, who announced during his first official visit to the country recently that AfDB was finalising a $1 billion “budget support package” aimed at boosting a series of infrastructure and private sector projects in recession-hit Nigeria
He however, said Nigeria should do more to “reap the dividends of devaluation,” including the creation of “incentives for foreign direct investments”. He also called on Nigeria’s leaders to “put in place the right incentives to boost private investment and revive growth”.
“With the right incentives, the country will come out of the recession, structurally better balanced,” Adesina said.
“The revenue base will be more diversified. The government will get more resources from better performing manufacturing and industrial sectors and SMEs. And, most importantly, unemployment will decline substantially.”
During the 20th edition of CBN seminar for finance correspondents and business editors in Abakaliki last week, the bank’s director of policy, Mr. Moses Tule said fiscal and monetary authorities should meet on a quarterly basis to synchronise issues for national development.
According to him, some other countries have legalized regular compulsory interactions between the two important authorities as a way to ensure there are no contradictions in the two directions.
In an interview with Banker Magazine, Emefiele said CBN will pursue price stability as an anchor for economic growth and attract foreign investors as the country battles recession and rising inflation.
In September the bank left its benchmark rate at 14 percent, resisting calls from the finance minister to lower borrowing costs to help the government borrow more domestically without increasing its debt servicing costs.
It has said it will keep interest rates tight to attract foreign currency and resolve a chronic dollar shortage brought on by a slump in oil prices.
“The central bank does not reckon that curbing inflation, attracting foreign investors and supporting growth are mutually exclusive objectives,” Governor Godwin Emefiele told The Banker magazine, in the interview published on Saturday.
“The bank will continue to ensure that its decisions not only consider price and financial system stability, but also issues of employment and growth.”
The central bank has said policymakers will need to act together on fiscal, monetary and trade policies to jump start growth, and that interest rate cuts alone will not help pull Nigeria out of its first recession in 20 years.
Past rate cuts have not spurred credit growth as the banking system did not respond to the move, the bank said.
Rising inflation – which hit a more than an 11-year high of 17.6 percent in August – was not due to excess money supply but was the result of government policies that included a hike to electricity tariffs and fuel prices and a currency floatation which meant the naira fell 30 percent in one day.