The Centre for the Promotion of Private Enterprise, CPPE, has said the Central Bank of Nigeria, CBN, prolonged monetary policy tightening has worsened the country’s development finance gap, which it estimates at over N50 trillion.
The Chief Executive Officer of CPPE, Muda Yusuf, disclosed this in a statement issued at the weekend, warning that an overreliance on conventional monetary policy risks undermining investment and growth in key productive sectors.
According to the economic think tank, Nigeria cannot depend solely on commercial banks to finance industrialisation and agricultural transformation, given the country’s huge financing needs.
CPPE urged the CBN to rethink what it described as its retreat from development financing and called on both the apex bank and the Federal Government to significantly recapitalise the Bank of Industry and the Bank of Agriculture to bridge the funding gap.
“CPPE estimates a conservative current real-sector financing gap of over N50 trillion when account is taken of unmet financing needs across manufacturing, agriculture, agribusiness, MSMEs, supply chains and export-oriented enterprises,” it said.
The group noted that the current monetary policy environment has compounded the financing challenge.
“The prevailing monetary environment compounds the problem. With the Monetary Policy Rate at 26.5 percent and the Cash Reserve Requirement for deposit money banks at 45 percent, commercial lending rates are generally incompatible with the expected returns on many productive investments,” it added.
While acknowledging the CBN’s efforts to restore monetary policy credibility, CPPE said the tightening measures have produced positive outcomes, including improved exchange-rate stability and moderation in inflationary pressures.
“CPPE recognises the imperative of monetary and price stability and acknowledges the CBN’s commitment to restoring monetary policy credibility. The sustained monetary tightening has yielded some positive outcomes, particularly in strengthening policy credibility, supporting exchange-rate stability and moderating inflationary pressures. These gains are important and should be preserved.
“However, monetary stability should ultimately serve the broader objectives of investment, productivity, employment and sustainable economic growth. The challenge, therefore, is to achieve an appropriate balance between price stability and the financing needs of the productive sectors of the economy,” the economic group stated.
The think tank group warned that treating price stability and development finance as competing objectives could hamper economic transformation.
“Excessive fixation on conventional monetary orthodoxy risks underestimating the structural financing constraints confronting Nigeria’s productive sectors. Price stability and development finance should not be treated as mutually exclusive objectives.
“In an economy characterised by deep financing gaps, market failures and severe supply-side constraints, monetary stability must be complemented by carefully targeted, transparently governed and non-inflationary development finance interventions to support manufacturing, agriculture, agribusiness and other strategic productive sectors”, CPPE stated.
It added that Nigeria requires a policy mix that keeps inflation under control while ensuring businesses have access to affordable long-term financing.
“Nigeria faces an important policy challenge: monetary conditions may need to remain sufficiently restrictive to contain inflation, while the productive economy simultaneously requires affordable, long-tenor capital to expand investment, output and employment.
“It is unrealistic to expect conventional commercial banking alone to finance Nigeria’s industrialisation and agricultural transformation.
“Reconsider the seeming retreat from development finance without returning to direct and discretionary intervention lending.
“Significantly recapitalize, scale and strengthen development-finance institutions, especially the Bank of Industry and Bank of Agriculture, as the principal channels for long-term productive-sector financing”, CPPE added.
DAILY POST reports that under Governor Olayemi Cardoso, the CBN has scaled back its development financing interventions as part of efforts to refocus on its core mandate of maintaining price and monetary stability.
