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Rising unemployment, income inequality worry CBN

By on July 24, 2014

The Monetary Policy Committee of the Central Bank of Nigeria on Tuesday expressed concern over the high level of unemployment, income inequality and poverty in the country.

The Governor, CBN, Mr. Godwin Emefiele, stated this while addressing journalists shortly after the two-day meeting of the committee.

Emefiele, who presided over the meeting for the first time since he assumed office as the CBN governor, emphasised the need for the government to sustain and deepen tax revenue and enhance efforts aimed at fast-tracking the structural transformation of the economy.

He said this would assist the economy to become resilient to adverse shocks as well as create the necessary platforms to generate jobs, create wealth and reduce income inequality.

The governor said while the committee welcomed the impressive growth performance so far recorded in the economy over the last few years, the country had the potential to do better with appropriate supportive macroeconomic policies.

Real Gross Domestic Product growth rate for 2013 stood at 5.49 per cent, compared with 5.31 and 4.21 per cent recorded in 2011 and 2012, respectively.

Similarly, the revised estimate of 6.77 per cent for the fourth quarter of 2013 was an improvement over the 5.17 per cent and 3.64 per cent in the previous quarter and the corresponding period of 2012, respectively.

In the first quarter of 2014, real GDP growth was 6.21 per cent, which was higher than the corresponding quarter of 2013.

But Emefiele said while the committee was satisfied with the relative stability in the macro economy as reflected in the impressive growth rates and increased external reserves; it was, however, concerned about the weak translation of the stability to microeconomic gains in employment.

He said, “The committee welcomed the impressive growth performance but noted that the country had the potential to do better with appropriate supportive macroeconomic policies. The committee, therefore, stressed the imperatives of monetary policy to sustain efforts aimed at supporting non-inflationary growth in key sectors of the economy.

“The committee also emphasized the need for the government to sustain and deepen tax revenue, and enhance efforts aimed at fast-tracking the structural transformation of the economy, with a view to making it resilient to adverse shocks as well as creating the necessary platforms for reducing unemployment, income inequality and poverty in the country.”

While noting the potential of the power sector to stimulate output growth through enhanced investment and the spill-over effect in employment generation, Emefiele regretted that gas-to-power had remained a binding constraint to reaping the benefits of the recently concluded power sector privatisation.

He, however, called for the collective efforts of the government, private investors and the banks to resolve the challenges facing the sector.

The governor also identified pressure from food/core inflation and the risks that could emanate from the likely increase in aggregate spending in the run-up to the 2015 general elections as other pressure points to monetary policy stability.

The CBN boss said, “The committee was also concerned about the implications of the on going quantitative easing tapering for inflows and external reserves. The committee recognised the necessity of sustaining a stable naira exchange even as it has to deal with the delicate balancing of the need for a low interest rate regime.

“The committee noted that portfolio flows were not employment generating but were essential in the absence of adequate fiscal buffers.”

He put the gross official reserves at $40.20bn as of July 18 from $37.31bn at end of June 2014.

The governor attributed the rise in the reserves to increased accretion and moderation in the rate of depletion, noting that the country’s reserves could finance up to 10 months of import.

On monetary policy direction for the next two months, Emefiele said the committee unanimously voted to retain the current stance.

Consequently, he said the committee voted to hold the Monetary Policy Rate at 12 per cent for the 15th consecutive time with a corridor of +/-200 basis points; keep the Cash Reserves Requirement on public sector deposits at 75 per cent; and the CRR on private sector deposits at 15 per cent.

In addition, he stated that the committee voted to retain the liquidity ratio at 30 per cent.

When asked why he decided to hold the MPR at 12 per cent when he had promised upon assumption of office to “pursue a gradual reduction in interest rate,” Emefiele said he was still monitoring developments in the financial market.

He said, “We are working on the issue of the interest rates and what I said during my statement on June 5 is to pursue a gradual reduction in interest rate.

“That agenda is a five-year agenda statement that we made. We are monitoring the situation, monitoring the liquidity situation in the money market, monitoring the spending of Nigerians and the government to the run-up to the elections; and as we begin to see that the macro economic variables are moving in the direction that we expect, you will begin to see the reversal in interest rates in the direction where we want to be.”

He said the bank remained committed to achieving the promise to lower interest rates, noting that it was just being careful so as not to create another problem, while trying to lower the rates.

 

[Punch]

One Comment

  1. Thaio Father-Hero

    July 24, 2014 at 6:29 am

    It is good to know that the CBN is finally begin to show concern for the REAL indicator of development via the 3 fundamental parametals of Dudley Seers; looking at what is happening to unemployment, inequalities and poverty. I hope they will not stop at the level of rhetorics. Wishing you all the best GIE.