A member of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC), Dr. Aloysius Uche Ordu, has said the country needed urgent action to scale up improvements in overall investment climate to attract Foreign Direct Investments (FDIs) that is much more sustainable.
Ordu said while Nigeria was not the only emerging market economy that experienced outflows of portfolio investments, a key lesson from other countries including India, Indonesia, Vietnam, South Africa was to improve on the ease of doing business in the country and remove all encumbrances to incentivize foreign investors into the country.
The MPC member stated this in his Personal Statement at the 295th meeting of the MPC held on May 20 and 21, 2024 to review recent economic and financial developments and assess risks to the outlook.
The committee had at the meeting resolved to raise the Monetary Policy Rate (MPR), the benchmark interest rate to 26.25 per cent in response to persistent inflationary pressures in the economy.
Ordu however, pointed out that the "monetary policy ought not be the only game in town for the express purpose of stabilising Nigeria's macroeconomy", adding that an "activist fiscal policy stance is urgently needed to bring inflation down quickly and painlessly".
Ordu who voted to raise the MPR by 100 basis points, and to hold the CRR and the asymmetric corridor at their current levels - had noted that "another substantial increase in the policy rate in May 2024 may raise market expectations both about the risks of inflation -- because the MPC is so concerned about it -- and market expectations about the ultimate expected tightening that we intend based on a balanced view of the evidence presented by CBN staff."
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While calling for a moderate increase in the MPR at the meeting, he stressed the need for the central bank to continue to urge patience and to "let our restrictive policy stance do its work".
The MPC member further observed that efforts to diversify the country's export base remained of utmost importance, stressing that measures are warranted to significantly boost oil production from 1.28 million barrels per day, which is well below the OPEC quota of 1.58 million barrels per day, especially as oil prices are above $80 per barrel.
He also said much more could also be done in the mining sector in view of the country's rich endowment in mineral resources.
He also noted that the tightened global financial conditions and high uncertainties continued to impact external financial flows to Africa, with overall declines in FDIs, official development assistance and portfolio investment.
He said across the region, public debt levels remained high at around 60 per cent of GDP in 2024, with debt service payments eroding fiscal space and constraining investments in vital infrastructure and human capital development.
Ordu observed that with the US dollar on track to remain stronger for longer on account of robust US growth, high interest rates, and geopolitical risks, African economies, including Nigeria will remain vulnerable as a stronger dollar raises the local currency costs of settling their international financial obligations.
He added that a strengthening dollar will also exacerbate the impact of higher oil prices on inflation and increase pressure on the balance of payments.
