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Emefiele: Why States Must Repay their Loans


I think it is important to say that for us at the CBN, we are not surprised. We are not surprised because Nigeria is just one country that is peculiar for a situation that is out of the ordinary. Out of the ordinary because you find Nigeria among several countries that is challenged by stagflation. Stagflation is a situation whereby inflation is running high, prices are running high and at same time, output growth, in this case the GDP is contracting. If you understand how this works, you will find out that as MPC, your core responsibility is to rein inflation by ensuring that you keep supreme your price and monetary stability mandate. And to do so means that you have to tighten to be able to rein in inflation. On the other hand, the economy is confronted by a contracting output where growth is negative.

And the normal way in economics you would want to really recover from a contracting economy is to stimulate the economy with a lot of easing and by injecting liquidity into the system so as to stimulate consumption, investment, increased government expenditure, increased export earnings and possibly see what you can do to reduce imports. That is basically the definition of output growth – Y = C + I + G + (X − M). That is what you need to do. So, you find that in doing this you are seeing a situation where the objective is moving in opposite direction. But what did we do? At MPC, particularly in the last meeting, we said we would try as much as possible to be pro-growth so as to continue to see what can be done to accelerate output and at same time we are going to keep our eyes on whatever can be done to rein inflation.

And in doing this, MPC came up at that meeting and said we are going to be adopting a systematic synchronisation of monetary policy variables that would help to rein in inflation and at same time boost output. At the last meeting, MPC encouraged the management to adopt some form of administrative measures to mop up liquidity and control money supply in the system and in the process rein in inflation by reducing the money supply that would help to control inflation. But at same time, on the output side, we agreed to use our development finance tools to boost output by ensuring that liquidity and funding is made available at concessionary rates to employment-generating and output-stimulating sectors of the economy.

So, that is what we have done and that is the reason we are saying it is not a surprise to us; but those who do not understand it would be wondering how it happened. I have heard a couple of people say they expected the output to be negative and some even said manufacturing has not seen enough impetus to make the output growth positive. But, let me give you some numbers: When the pandemic struck effectively, we said all CBN facilities would now go at five per cent and what we did was also to extend that in 2021 to March 2022. We asked the banks to restructure some of the facilities of companies and businesses that are being impacted adversely by the pandemic. We provided stimulus by saying we are putting in place initially N100 billion for targeted credit facility, we increased it to N150 billion; at the last meeting it was increased to N300 billion because we saw the positive effect this was having on consumption expenditure. We also went forward to say that for the health sector, we would make available stimulus of N100 billion for some of our pharmaceutical industries that had gone moribund to come back alive or even expand the plants of some of the existing ones. Also to see what can be done to retool our hospitals so that they can provide health facilities.

These were all stimulus that were meant to stimulate consumption expenditure and also investments. We are also doing everything possible to ensure that goods that can be produced in the country are produced here so as to constrain imports and make it difficult for people who want to access forex to bring those things that can be produced here. So, for us, it is science to expect that what happened (GDP Growth), took place. On the manufacturing and agric sector where the Lagos Chamber of Commerce and Industry’s Director-General was talking about, we made available N1 trillion and out of that, we have disbursed so far, N856 billion to 77 manufacturers – 36 in agro-business; 30 in services and 11 in mining. These are targeted interventions to support employment-stimulating and output-generating sectors of the economy at the intervention rate of five per cent. So, it is not surprising that we are seeing what we are seeing presently. But what MPC has decided that we should be doing is to see how we can proceed from here? What are those indicators that made us see the positive GDP figures? That is why we decided to hold interest rate and we have decided to continue our administrative measures. On the output side, we were encouraged to continue to use our interventions to agriculture, manufacturing and the targeted credit facilities to make sure we are able to stimulate consumption and investments in order to ultimately yield positive result for growth in the economy.

Indeed, out of the targeted credit facility, almost the entire N300 billion has now been disbursed and the MPC has encouraged the management of CBN to increase it to N400 billion. What does that mean? More money would be made available to households, small businesses for then to go back to business, which would ultimately yield employment and grow our economy. So, when people begin to doubt the NBS numbers, I think they are speaking from uninformed position about what is happening in the Nigerian economy. We have always said the CBN processes the data and we have data and we would continue to read the data out for Nigerians to see what we are doing. So, we ask policy analysts to always demand for data, on the basis of which they come up with conclusions and not for them to be making disparaging comments that tend to create problems for the managers of the economy.

What is your view concerning insecurity in the country?
If there is high level of insecurity that results in the kind of situation we are seeing today, then the economy would suffer; even in the midst of all the efforts we are putting in place to resolve the problem. I heard after the National Security Council meeting last week where the Chief of Defense Staff assured us that everything is being done and he talked about the fact that the military has made some successful inroads into the north central part of the country. Indeed I was reading the newspaper where some people in Niger State and even the State Governor said they have seen some improvements in security in the state; which tends to confirm what the Chief of Defense Staff talked about. He also talked about the fact that in the north-western part of the country, efforts have been made to address some of the security challenges in those areas. Yes, they have not fully completed that assignment, but I can see that we are making some progress. He also alluded to the fact that efforts would now be targeted at the south-eastern, south-western and north-eastern parts. So, I am optimistic that the security institutions are doing their best to tackle insecurity.

And I must say this: Nigerians know that about three years ago the federal government and the United State government signed a pact that resulted in a government-to-government acquisition of military equipment, out of which we are expecting at least 12 tucano aircraft or fighter planes that would help us combat insecurity. Letters of credit were opened through the CBN and funds were remitted to the United States. I am aware that at least six of those aircraft are coming in between July and August and I therefore would like to appeal to our brothers who decided that they would like to live in the bushes and forests that they should please begin to retreat, drop their arms and come and embrace the Anchor Borrowers’ Programme. If they do so, it will help them; but if they choose not to do so, then they would be confronted by security as this battle continues. So, I am optimistic that before the end of the year, the security challenges confronting the country would substantially abate.

Last year, February precisely, you announced some stimulus for households and small businesses impacted by COVID-19 and also granted some form of forbearance. But then SMEs are complaining that banks are offering higher interest rates to them and some are even demanding they start repaying their loans, can you speak to us about that?

Yes, we said five per cent for CBN’s interventions we have extended it to March next year. The banks are asking for their loans to be paid back. In any case, I must admit that the banks are saying that there have been some improvements in the economy, even though fragile. Crude prices have gone up and business activities are beginning to regain energy and life once more. So, if the banks are asking for the repayment of their facilities, I think it would be justified. You raised the issue of interest rate, that the banks are charging higher rates. We admit at CBN that we are controlling money supply and if we control money and the banks raise interest rates in non-employment generating sectors or non-output generating sectors of the economy, we can’t force them. That is because we have our intervention facilities meant to target agricultural, SMEs and households meant to stimulate employment and output for the economy.

Recently, the global economy witnessed ripples from the crypto-currency market which saw some people praising the CBN. Can you confirm if your stance actually protected Nigerians from that market?

It is not about the CBN being vindicated. We had carried out our investigation and we found out that a substantial amount of our people are getting involved in cryptocurrency and that it is not the best for them. Don’t get me wrong; some may be legitimate, and I will corroborate that. Under cryptocurrency or bitcoin, Nigeria comes second; but in the global size of economies, Nigeria comes 27th. So, do you think those countries whose economies are between second and 26th would allow you to grow your cryptocurrency business to second position if what is involved is a big deal that is going to profit everybody? It is not that simple. But we are still analysing data and we would make them available at the appropriate time. Of course, we saw it that the market collapsed. Elon Musk twitted about the time we said our banking and payment infrastructure would no longer be available for crypto-currency transactions that he was going to invest $1.5 billion in that market and the rates went to the roof. And he later twitted again and raised a few concerns and prices plunged.

Elon Musk has decided that he would no longer deal on cryptocurrency. I was confronted at the National Assembly by someone who said he deals on $50 million cryptocurrency weekly and I was wondering where did the dollar come in through? Through what bank did the dollar of $50 million per week flow through? And he was looking at me because those dollars didn’t come into the Nigerian economy. If it didn’t come into the Nigerian economy, I have no reason to believe it is a legitimate business. But don’t forget, those who invented crypto said it is encrypted. When they say it is encrypted, it means that whatever is happening between you and I is only known to both of us. So, in case I defraud you, because it is encrypted, you won’t be able to disclose my name and you can’t get your money back. That is not what a responsible central bank would support. I have heard about digital currency; we are working on it, we have set up a committee at the CBN and I can assure everybody that digital currency would come to life in Nigeria.

It has been observed that the official exchange rate on the CBN’s website has been replaced with the NAFEX rate, what does that imply and I will like you to speak to the availability of forex in the country?

We found out that we were not dealing on the official rate. All transactions are benchmarked against the NAFEX. I had in some places where some said we have depreciated the currency and I came out to say we did not depreciate the currency. Nigeria still operates a managed float regime where the CBN would observe the market and as it deems fit, depending on the direction where it thinks the market would be, would intervene to control exchange rate in the market. And that is what we are doing. So, that NAFEX rate you are seeing at N410 to a dollar today, it might be N409 to a dollar tomorrow, N411 or even N400. That is because we are monitoring the market. So, it is not fixed, we are still managed float system where we are monitoring the market to see what is happening in order for us to ensure that the right things are happening for the good of the Nigerian economy. In terms of availability of forex, $35 billion of external reserves can support almost 10 months of Nigeria’s imports. I don’t know why anybody would worry. But I can only assure you that we are doing everything to ensure that the CBN is able to fund all legitimate domestic import obligations of people who need forex and we are not going to shirk our responsibility in this area.

I will like to know if you have commenced the process of recovering the loans granted to the various states in the country?
There are two aspects to this: There are intervention facilities granted by the bank and there are bilateral facilities granted by the deposit money banks to them. They went to deposit money banks, they asked for loans and signed the offer letters with those banks and the gave their Irrevocable Standing Payment Orders (IPSOs) to the Federal Ministry of Finance that on a monthly basis the Minister should deduct from their monies and pay the banks for the loans they had taken. And I am aware that the banks had written to the Finance Minister and they had copied me that they want their money. If it was the bilateral loan, they should pay their loans. On the CBN intervention facilities to the state governments, we are engaging the National Economic Council (NEC) and the CBN is also insisting that its loans must be paid. But depending on the outcome of the discussion between the CBN, Minister of Finance and NEC, we would begin to take back the money we gave them. In any case, it is good for you to be a debtor. When you take a loan, you ensure repayment so that when you go back to the bank, you can get. But if you refuse to pay, you will never smell the doorstep of the banker again.

The CBN’s ‘Naira-4-Dollar’ policy ought to have come to an end by May 8th, but it was recently extended indefinitely. What is your assessment of the programme and what has been its impact?

Yes, we extended it indefinitely because we feel that we need to encourage diaspora remittance into Nigeria. I have been reading that the size of remittance in Nigeria is almost $30 billion and the only way I can see such an amount is to encourage more diaspora remittances. So, that is like an incentive of promo and we have decided we are going to do the promo so that we would continue to see the flows come in. We actually have been seeing the trend that it is rising. We did it because we feel other countries are offering same incentives. Pakistan and Bangladesh, on a monthly basis they collect close to $2 billion from remittances and they have similar kinds of incentives that they put for their citizens in diaspora. So, we would continue to do whatever we need to do to encourage diaspora remittance because it is one of the four areas through which we can encourage flows into the country in order for us to meet our obligations.

You were in Ekiti recently where you faulted claims of the imbalance in the bank’s intervention scheme, I will like you to throw more light on that?

I have debunked that allegation earlier. Like I said, close to N600 billion had been disbursed to various interventions of the CBN and out of that N300 billion has been disbursed to the southern part of the country.

The CBN has adopted various measures such as credit to SMEs that have helped to stimulate output, now that the CBN is attaining its threshold, what does the central bank intends to do?

As long as we find that what we are doing is yielding results, particularly boost consumption expenditure and investments, we would continue to do so. That is the reason the MPC has given us the mandate to say we should move further at N400 billion in order to support our households and SMEs for them to begin to do business. We have received positive testimonials about how this has helped. In fact, we are going to begin a television documentary to show those who have benefited from this and how it is helping them to create jobs. So, we would continue to do these things because we believe it will help our economy to grow and the level of insecurity reduced.

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