CBN’s Monetary Policy Committee Proffers Solution to Global Economic Crisis

The Monetary Policy Committee sat in Abuja today and discussed amongst other things, the global economic crisis. The committee expressed concern on the economic “weakness” of many developed and industrial countries due to bloated sovereign debt ratios and the trickledown effect these developments could have on the Nigerian economy. The committee disclosed that it was afraid the global economic slowdown will hurt oil prices and called on the Federal Government of Nigeria to formulate sound economic policy to wean the National economy off its oil dependency and onto a more diversified economic platform.

The committee said in a statement released on the Central Bank’s website today, “… financial markets have become nervous with their uncertainties reflected in the volatility of stock, bond and foreign exchange markets. Current account imbalances are also projected to be high in 2011 in both the US and the Euro area.”

The committee expressed concern on how the Central Banks’ of developed economies (highlighting the US and UK) are handling the crisis stating that this may lead to a long period of a deep global recession. The statement from the committee read, “as the policy rates [of developed economies] are close to zero, the only recourse available to central banks to promote recovery is through quantitative easing. In resorting to quantitative easing, the Committee is concerned that central banks, particularly, in the US and UK, are failing to recognize the limitations of monetary policy and delaying the difficult but inevitable structural adjustment required by the developed world to avoid a recession.”

The Committee did not stop short at mentioning the problems, but also went ahead to proffer solutions. The Committee stated that it would be prudent for the Central Banks’ of developed economies to write off a significant portion of their sovereign debt, and recapitalize “systemically” important banks, as well as introduce austerity measures.

Similar wisdom is being echoed all around the world, however the upcoming elections in the USA, and across Europe are stopping politicians from taking the wise decisions and instead playing political ostrich in order to score political points by avoiding public outcry due to the difficulty in the decisions that need to be taken.

Providing further wisdom, the MPC also called on the Federal Government to introduce austerity or belt-tightening measures instead of increasing borrowing in the face of a decline in global oil prices. This would of course mean that Nigerian lawmakers would have to reduce their salary and the cost of government. However this is not a popular topic with Nigerian politicians, who invest millions campaigning elections and view the astronomic incomes earned as a result of political power as their dividends of democracy, even as the general populace is forced to bear the economic hardship.