The Central Bank of Nigeria (CBN) at the weekend warned the federal, states and local councils against spending all their revenues though FAAC sharing in the face of dwindling revenues and rising public debts at national and sub-national levels.
The Governor of the apex bank, Godwin Emefiele, who cautioned the tiers of government after the maiden meeting of the Monetary Policy Committee on Friday in Abuja, also also advised the tiers of government to save as a fiscal strategy to absorb any shock that might be triggered by the volatility in the global oil market and the rising debt stock in the near future.
Emefiele told journalists during the briefeings on the major decisions taken at the meeting the members also concluded that there was the need to tread cautiously in interpreting the debt to GDP ratio.
He said: "The Committee also noted the rising burden of debt services and urged the Fiscal Authorities to strongly consider building buffers by not sharing all the proceeds from the Federation Account at the monthly FAAC meetings to avert a macroeconomic downturn, in the event of an oil price shock."
While urging the federal government to gradually reduce reliance on oil receipts and focus on revenue diversification through reforms of the tax system, the Committee also urged it to rationalize fiscal expenditure towards reducing the current excessively high cost of governance.
On the decisions taken on the key rates, Emefiele said that the CBN raised the cash reserve ratio (CRR) by 500 basis point from 22.5 percent to 27.5 percent. With this decision, the cash available to the banks for lending will reduce as the banks will be required to tie down more funds at the CBN vaults. This might impact interest rates.
The MPC, however, held all other rates constant. It voted retain the MPR at 13.5 per cent; retain the asymmetric corridor at +200/-500 basis points around the MPR; and retain the liquidity ratio at 30 percent.