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Home Economy

Fitch lashes at CBN’s methods, says causing damage to Nigeria’s economy

3 years ago
in Economy, Features, highlights, Home, home-news, latest News
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Godwin Emefiele, Governor of Central Bank of Nigeria, speaks at the Nigeria Capital Markets and Banking Forum.  Chris J Ratcliffe / Bloomberg

Godwin Emefiele, Governor of Central Bank of Nigeria, speaks at the Nigeria Capital Markets and Banking Forum. Chris J Ratcliffe / Bloomberg

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Fitch lashes at CBN’s methods, says causing damage to Nigeria’s economy

Fitch, the global ratings company has lashed out at Nigeria’s Central Bank and its complex policies some of which it blames for compounding the country’s economic woes.

In a report, Fitch says, “the CBN is using these discretionary measures to inject or withdraw liquidity from the financial system, as well as influencing borrowing costs for specific sectors through various loan guarantees and direct support facilities.

“This has made monetary policy difficult to gauge and created a segmented interest-rate environment, impeding the transmission of monetary policy. The CBN adopted the Investor and Exporter (IEFX) window as the official exchange rate in May 2021. However, it continues to use administrative controls to manage the demand for foreign exchange, which has caused economically damaging shortages. “

Fitch said because it expects the apex bank’s complex and unorthodox monetary approach to continue, Nigeria should not expect a “significant strengthening of macroeconomic performance in the near term, despite the supportive effects of higher global oil prices for the economy.”

Fitch said “the central bank’s inflation-fighting efforts have been complicated further by its lending to the federal government. “

Nigeria had planned to phase out fuel subsidies in 2022, but its now unlikely that it will be removed before 2023.

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As a result, Fitch now “forecast the general government deficit to narrow only moderately to 3.4% of GDP this year, from 4.2% in 2021.”

Moreover, Fitch said it “believe the CBN will use the Cash Reserve Ratio and the issuance of CBN special bills to tighten liquidity.”

The rating agency identified persistently high inflation as a key macroeconomic weakness, contributing to Nigeria’s relatively modest growth rates and weighing on external liquidity by discouraging financial account inflows.

Fitch forecasts Nigeria’s growth at 3.1% in 2022 but says “high inflation this year will dampen growth by eroding consumer and business purchasing power. The oil sector’s inability to raise production will provide a further obstacle to higher growth. Oil production slipped to 1.26 million barrels per day (bpd) in May 2022, from an average of 1.38 million bpd in 1Q22.”

Tags: FitchFitch lashes at CBN’s methodsNigeriaNigeria’s central banksays causing damage to Nigeria’s economy
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