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Analysts seek improved monetary, fiscal policy collaboration under Buhari

By BusinessNews Staff on April 3, 2015

The incoming administration of Major General Muhammadu Buhari has been advised to ensure improved collaboration between the monetary and fiscal authorities in economic management.

A report by Renaissance Capital Limited on Wednesday, specifically noted that such collaboration would ensure that corruption, wastage, revenue leakages, among others, are tackled.

The report, however, pointed out that the effect of Buhari’s victory on monetary policy would be “neutral.”

It also argued that there was no reason to think a Buhari win would put the Central Bank of Nigeria (CBN) leadership at risk.

“Given the extant economic realities, we do not think there are any meaningful read-throughs for monetary policy near term strictly because of a Buhari victory.

“What we will like to see however is improved collaboration between the monetary and fiscal authorities in economic management (tackling corruption, reducing wastage, reducing revenue leakages etc.), which could lead to a quicker easing of significantly tight regulations, such as the cash reserve ratio (CRR), on the Nigerian banks.

“We think near term, the monetary policy environment is likely to remain tight, which is our base case expectation,” it added.

The report titled: “Nigerian Banks: Thoughts on a Buhari Win,” while commenting on the effect of the outcome of the election on Nigerian banks’ oil and gas exposure, argued that the impact on the banking sector, in the near term would be negative, but positive in the long term.

“This is where we see a Buhari win having the most significant near term impact for the banks, and potentially a negative one. The question we ask is: what does this mean for social tensions in the south-south region where the Nigerian banks have been funding asset acquisitions by indigenous companies?

“This is risk to about 20 per cent of the sector’s loan book, on our estimates, which is in upstream oil and gas. Should the oil companies have to deal with significant and extensive shocks to their production volumes, following the marked decline in oil prices, we think the risk to cashflows could be too significant to quantify, thus leading to a noticeable rise in non-performing loans near term for the banks,” it stated.

However, Rencap’s oil & gas analysts do not see the risk as high, particularly since President Goodluck Jonathan has conceded victory and has appealed to the militants for calm.

“Furthermore, we think the increased participation of indigenous companies in the up-stream sector implies that there is deeper integration with the local communities, which should minimise the risks to output.

“There are other risks to the oil and gas sector which could have feed-through implications for the banks. On the other hand, we think there are potentially longer term benefits of a Buhari victory for the oil and gas sector and the banks, largely around improving transparency therein,” it added.

[ThisDay]

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