CBN: MPC member cautions against proposed increase in Ways and Means limit
By Muhammad Muhammad
A member of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), Prof. Murtala Sabo Sagagi has expressed concerns over a proposed increase in the Federal Government’s Ways and Means limit from 5% to 10% noting that it could lead to a significant surge in excess liquidity within the country’s economy.
Sagagi, a director of the apex bank said that this development poses a risk of increasing inflationary pressures and undermining the efforts of the CBN to stabilize the economy through its tight monetary policy stance.
SolaceBase reports that these strategic monetary instruments are part of recommendations submitted by the Kano-born Professor of Management at the end of the CBN Monetary Policy Committee meeting held recently.
He highlighted that the massive injection of funds into the economy, particularly the N22.7 trillion in Ways and Means financing in 2023, had already caused significant economic disruptions.
Also, he warned that increasing the Ways and Means limit might further fuel the government’s spending appetite, resulting in an overflow of liquidity that could destabilize the financial system and the broader economy.
Sagagi, an Enterprise Development and Investment Promotion Specialist applauded the bold effort of the apex Bank to transition from Heterodox monetary policies to orthodox regime which he insisted was necessary in view of the inflationary outcomes inherited by the present administration.
He posited that given the eventual free fall of the naira after the removal of fuel subsidy and the deregulation of exchange rates, the CBN had limited options but to embrace conventional monetary policy tools to ensure price and exchange rate stability and restore domestic and international confidence in the economy.
The former Director, Dangote Business School, Bayero University, Kano, submitted that MPC decisions since February 2024 have moderated the exchange rate and the month-on-month headline inflation rate had decelerated in the last four months.
Sagagi however raised concern over market imperfections and abound market failures which can lead to unintended consequences, including distortions in resource allocation.
The investment expert therefore urged CBN and fiscal authorities to develop a stimulus package that enhances small-scale and medium enterprises to multiply job opportunities, among other recommendations.
According to Sagagi, “Although, the tight monetary stance of CBN is yielding positive results, market imperfections and market failures abound and can lead to unintended outcomes in terms of distortions in resource allocation leading to sub-optimal performance of the conventional policies deployed, especially in the face of fiscal dominance.
“Therefore, an alignment of monetary policies with fiscal interventions is critical in sustaining the CBN’s consistent efforts to attain macroeconomic stability. This is more so because improvements in government expenditure, interest rate, inflation, exchange rate, money supply and export could fast track economic growth in Nigeria.
“Achieving a balanced approach, however, remains a challenge because the dynamics and unstable nature of the Nigerian economy make conventional tools less effective and modelling solutions particularly difficult.
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“Nevertheless, constant evaluation of policy actions to determine effectiveness in terms of outcomes and impact on the general economic health of the country should inform policy decisions”. Sagagi submitted.
In his recommendations to sustain stabilization in the economic outlook, Sagagi further opined: ” The problem of Nigeria is production not necessarily consumption. The CBN and Fiscal authority should develop a common approach to channeling funding to small businesses to fast-track growth and job creation in a manner that would curtail excess liquidity.
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“The FG and the CBN should develop a holistic framework for engaging, attracting and facilitating investments in high-potential sectors. We should replenish food strategic reserve, such that in view of the fast-approaching harvest season, the need to restock the country’s strategic reserve is paramount.
“This should be complemented by working with supply chain actors to discourage hoarding and unregulated exports of staple food items. Infrastructure: Fast track the completion of ongoing rail projects to enhance efficiency in the supply chain thereby reducing cost of food in the country”. Sagagi submitted.
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