Nigeria: CBN and Rapid Inclusive Growth

opinion

The 2018 Appropriation Act fixed the naira exchange rate (AAR) of N305/US$1 (the same as in 2017) and raised the benchmark oil price to $50.50/barrel from the initially proposed $45/barrel. Other things being equal, the revised benchmark would trim the fiscal deficit below the indicated 1.77 per cent of GDP based on the discarded benchmark price. Hence the 2018 inflation expectation is about 1.77 per cent. In 2017, actual fiscal deficit was 1.9 per cent. Suppose total state governments' deficit amounted to one-quarter of the federal level thereby bringing the overall fiscal deficit to some 2.4 per cent of GDP. The attendant inflation expectation of 2.4 per cent fell within the safe 0-3 per cent inflation range.

Ordinarily, such level of inflation permits accommodative monetary policy stance and positive real lending interest rates of 4-7 per cent. Low lending rates within that range (signifying prevailing conducive production environment) are investment-friendly, foster extensive borrowing for productive activities, facilitate emergence of a private sector-led throbbing economy, engender inclusive rapid growth and development and vice versa in emerging economies. However, contrary to the 2017 low inflation expectation, estimated inflation by NBS stood at between 18.7 per cent in January and 15.4 per cent in December. The lingering impact of 2016 naira devaluation is not adducible to fully explain the high inflation outturn. It has been shown elsewhere that annual inflation expectation deducible from budget expenditure and realised revenue has been consistently exceeded because CBN repudiates the economy-wide application of the relevant AAR, subjects the economy to excessive fiscal deficits by disbursing for government (all tiers) budgetary spending substituted pro-rata apex bank funds in lieu of withheld (by CBN) Federation Account dollar allocations and operates artificial devalued exchange rates that unsettle the productive sectors of the economy while enriching interlopers.

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