CBN governor, Yemi Cardoso
Data from the Central Bank of Nigeria has shown that credit to the public has expanded at a faster rate than credit to the private sector in the past year.
According to the Money and Credit Statistics data obtained from the CBN’s website, credit to the government stood at N42.02tn as of September 2024, compared to N22.14tn as of the same period in the previous year, indicating an 89.79 per cent increment.
During the same period, credit to the private sector also rose, albeit at a slower pace, to N75.85tn from N59.51tn in September 2023, marking a 27.46 per cent increase in one year.
Credit to the private sector from banks includes loans, trade credits, and other account receivables and supports provided by banks to the private sector within a period. Government credit comprises credit facilities extended to the government.
Credit to the private sector had been squeezed by the sustained hikes in the benchmark interest rate by the Monetary Policy Committee of the CBN, which raised the MPR at all of its meetings this year by over 800 bps to 27.50 per cent from 18.75 per cent as of December 2023.
However, CBN data showed that there had been dips and upswings in credit to the government, but it had mostly stayed below N30tn. However, in the third quarter, credit to the government had risen from N19.83tn in July to N31.15tn in August and then N42.02tn in September.
There may be even more constriction in the flow of credit to the private sector in the coming year as the Governor of the CBN, Olayemi Cardoso, has maintained the apex bank would maintain its hawkish stance to tackle inflation.
Speaking at the annual Bankers’ Dinner of the Chartered Institute of Bankers of Nigeria in November, Cardoso said, “Our foremost priority is to achieve price stability, with inflation as a central focus. While inflation has shown early signs of moderation, we are fully committed to doing everything in our power to tame inflationary pressures in 2025. To this end, we will maintain vigilance through the strategic deployment of our monetary policy tools.
The monetary policy rate will continue to serve as our anchor for inflation management, calibrated on evolving economic conditions and data. The cash reserve ratio and open market operations will be adjusted as necessary to ensure liquidity levels in the banking system remain aligned with our inflationary goals.”
Afrinvest, in its weekly economic and financial market review, pointed out that the aggressive policy tightening by the CBN (including the hike in cash reserve ratio by 12.5 ppts to 45.0 per cent and lowering of the loan-to-deposit ratio by 15.0 ppts to 50.0 per cent) have begun to temper the growth rate of credit to the private sector (up by 27.45 per cent in the 12 months to September 2024 vs. 46.9 per cent in the prior 12 months), while credit to the government expanded faster by 89.79 per cent (previously: -3.0 per cent) to N42.02tn.
“Against this backdrop, the broadest measure of money supply, the M3, expanded by 62.8 per cent over the period to N109.0tn, outpacing the 35.7 per cent expansion in the 12 months that preceded Dr. Cardoso’s assumption of office.
“This large expansion in credit to the government that has spent 79.6 per cent of its budget on consumption (recurrent expenditure and debt servicing) between January and August this year contravenes the anti-inflationary posture of the CBN. Furthermore, anecdotal evidence reveals that FX volatility usually intensifies within the first three days of FAAC disbursement.
This, alongside legacy challenges weighing on productivity and export earnings (which are manifestations of the fiscal sector underperformances), contributes to the unending FX rate quagmire and, by extension, the sticky high inflation episode,” the analysts asserted.
They added that for the efforts by the CBN to boost confidence in the business environment to lead to long-term gains, “the fiscal authorities would need to step up measures to de-risk the business environment, eliminate public sector bureaucracy, and stem corruption through the empowerment of appropriate institutions to deliver on their core mandate.”
Fiscal-monetary policy synergy has been one of the critical components of economic management that stakeholders have been calling for.
The Minister of Industry, Senator John Enoh, during his inaugural meeting with stakeholders in the real sector, also highlighted the need for synergy to reduce pressure on the monetary side, saying, “There has been too much focus on the monetary side; that is why you will find that the CBN would periodically increase the interest rates. I don’t think that on the fiscal side, it has been quite enough. There are a lot of things that can be done on the fiscal side that would reduce the pressure on the monetary side in terms of policies.”
