Tax factors, not CBN, responsible for inflation
Nigeria is going through a difficult economic crisis in its history, with an inflation rate of 18.6% in the month of June 2022 against 17.71% recorded the previous month.
Heavily indebted and in a volatile operating environment, the economy’s supply side is notoriously disrupted by Russia’s invasion of Ukraine and internal factors, particularly insecurity which has almost completely halted agricultural activities throughout the country.
Government Bureau of Statistics – the National Bureau of Statistics (NBS) said food inflation, which is closely watched, rose to 20.6% in June 2022 from 19.5% recorded in May 2022. As expected , the Monetary Policy Committee of the Central Bank of Nigeria (CBN) responded to this by announcing an upward revision of the official interest rate by 100 basis points – 14%, two months after the rate was raised. by 150 basis points in May 2022 – from 11.5% to 13%. For any economic analyst, this is an important issue that needs to be addressed immediately.
Some industry experts, especially those from the Lagos Chamber of Commerce and Industry (LCCI), believe that the CBN is responsible for the rising rate of inflation in Nigeria. They even go so far as to say that raising the key interest rate would not be enough to control inflation. Of course, the causal factors must be addressed, and this must be done by the tax authorities.
On the contrary, many economic experts claim that the CBN is not responsible for the rising inflation rate. Those who have spoken to this correspondent say that the monetary authorities have done more than expected. Economic diversification, local manufacturing, supportive policies, infrastructure and security are major instruments to reduce inflation and solve exchange rate problems in the country.
As things stand, beyond the economic shocks orchestrated by the Russia-Ukraine crisis, Nigeria’s biggest challenge is the high level of insecurity across the country. The rising inflationary figure is due to the harsh combination of continued supply chain disruptions and pent-up demand.
An economic analyst, Stephen Kanabe, who belongs to the league of those who have said that the causes of inflationary pressures do not directly affect the CBN, points to the fact that the considerable rise in underlying inflation results largely from rising production costs due to high energy prices associated with continued electricity supply disruptions, rising electricity tariffs, continued shortages of Premium Motor Spirit (PMS) and the rise in the price of automotive diesel (AGO). “The CBN has no regulatory or operational role to influence activities in these areas. So how can you blame him for what is happening in these regions, which are not responsible for the rise in inflation. CBN’s role is to act according to market realities. And the reality now is that inflation is high, the CBN needs to tighten to control the money in circulation,” he said.
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“The CBN is not to blame,” said investment consultant Shuaib Kabiru who agreed with the International Monetary Fund’s (IMF) earlier warning that the outlook for real gross domestic growth of 3.4% for Nigeria are now challenged by factors capable of undermining the growth projection.
The IMF said the outlook is challenged by high food and energy prices, spending pressures in tight fiscal space, persistent insecurity, especially banditry, kidnappings and electoral risks. . Other downsides to the economy, according to the IMF, are low COVID-19 vaccination rates, monetary tightening in advanced economies, and moderating foreign investment inflows and exchange rate pressures.
According to BNS figures, the increase in the food component was driven by food price shocks associated with persistent insecurity in food producing areas and along major access routes across the country. ; the continuing impact of the war in Ukraine on the supply of fertilizers, wheat and other cereals; exchange rate pressures; and the impact of monetary policy normalization on capital flows out of emerging markets.
Clearly, Nigeria’s strong taste for imports, rather than producing for export to earn foreign exchange, is one of the factors that has seen the value of the naira fall and inflation soar. . From refined petroleum product, wheat and used vehicles to furniture, Nigeria is highly dependent on imports.
But the problem is not unique to Nigeria. In emerging markets and developing economies (EMDEs), inflation is also on the rise, compounded by legacy structural challenges as well as heightened pressures on exchange rates, driven by increasing capital flow reversals. in addition to the described shocks to the global economy.
The apex bank had repeatedly called on the federal government to tackle insecurity to allow the return of agricultural activities across the country and help reduce inflationary pressure on the supply side of the chain. This is what is needed to solve the problem of the rise in prices of agricultural products which have exploded.
A lecturer in the economics department at the University of Lagos, Babatunde Adeoye has an idea of what should be done. For him, Nigeria must take steps to make the country productive in the manufacturing sector and create an enabling environment for foreign direct investment. He argues that Nigeria must be safe to attract desired investors to come and invest in Nigeria. “You don’t expect an investor to take their resource portfolio to a country that’s not safe. These are some of the fundamentals that we need to correct,” Adeoye said at the first two-day biennial international conference in Lagos.
The main inflation-reducing policies include restrictive fiscal policy (raising taxes), supply-side policies, wage controls and exchange rate appreciation. The CBN’s price control and financial stability mechanisms of raising interest rates, reducing demand and helping to control inflation are key to reducing the rate of inflation. These are somewhat complementary measures that depend on budgetary activities to operate.
Despite this, the CBN has engaged over the years in sustained intervention programs that are expected to bring inflation down as food supply improves and fiscal authority maintains its efforts to rein in challenges. inherited structural conditions that put upward pressure on domestic price levels.
Economic experts have urged the fiscal authority to extend and maintain support for all stimuli recently rolled out in the real sector of the economy.
There is general agreement that monetary and fiscal authorities need to work diligently to improve macroeconomic fundamentals in Nigeria. As Nigerians wait for the Federal Government to revive economic activities, including scrapping the outrageous fuel subsidy scheme and making the country safe for business activities to thrive, the CBN is already using unorthodox policy measures to rein in the inflation.
The CBN has published intervention programs aimed at boosting productivity in agriculture, manufacturing/industries, energy/infrastructure, health, exports and micro, small and medium enterprises (MSMEs). Between May and June 2022, under the Anchor Borrower Program (ABP), the Bank disbursed the sum of N3.62 billion, as disbursements for 12 rice, wheat and corn, bringing the cumulative disbursement under the program to N1.01 trillion, to over 4.21 million smallholder farmers growing 21 commodities across the country. The Bank has also disbursed N3.72 billion to finance three large-scale agriculture projects under the Commercial Agriculture Credit Scheme (CACS). These disbursements brought cumulative disbursements under this program to N744.32 billion for 678 agricultural production and agricultural transformation projects.
As part of its efforts to support the manufacturing sector, the CBN has disbursed N113.08 billion for 19 new projects under the Real Sector Facility. The funds were used for both greenfield and brownfield projects under the COVID-19 Response for Manufacturing (CIMS) and the Real Sector Support Facility from cash reserves differentiated (RSSF-DCRR). Cumulative disbursements under the Real Sector Facility currently stand at N2.183 billion for the financing of 414 real sector projects across the country.
Under the 100 percent policy on production and productivity, the Bank disbursed N9.98 billion for five projects, bringing cumulative disbursements under the intervention to N68.13 billion for 48 projects , including 26 in manufacturing, 17 in agriculture, three in healthcare and two in the service sector.
In the health sector, the Bank disbursed N4.44 billion for three health care projects under the Health Sector Intervention Facility (HSIF), bringing cumulative disbursements to 133, N42 billion for 129 projects, comprising 76 hospitals, 32 pharmaceuticals and 21 other health services. . To further expand the country’s non-oil export basket under the Export Facilitation Initiative (EFI), the Bank has released N36.00 billion for five domestic production and added value of cocoa and sesame seeds to improve non-oil foreign exchange. revenue.
To improve electricity supply to reduce the overall cost of generation in the real sector, the Bank has also intervened in the electricity sector to facilitate the deployment of enabling infrastructure. In summary, the sum of N2.53 billion has been disbursed to Distribution Companies (DisCos) for their Operational Expenditure (OpEx) and Capital Expenditure (CapEx), under the Market Stabilization Facility. Electricity of Nigeria – Phase 2 (NEMSF-2). The cumulative disbursement under NEMSF-2 currently stands at N254.46 billion. Under the National Mass Metering Program (NMMP), the Bank disbursed N47.82 billion for the purchase and installation of 865,956 meters across the country.
Many others who spoke to LEADERSHIP on the matter said that, fiscally, it is important for the government to put on its fighting gloves to fight the relentless bandit attacks on farming communities, even if that means to overhaul the entire security apparatus.