THE Senate has invited the Minister of Finance, Dr. Shamsudeen Usman, Special Adviser to the President on Economic Matters, Dr. Taminu Yakubu, and Central Bank Governor, Professor Chukwuma Soludo, to come and explain the reasons for the continuing free fall of the Naira against other international currencies.

They are to face the Senate on Tuesday, following the adoption by the senators yesterday of a motion to that effect sponsored by Chief Felix Bajomo and 22 others.

The Senate move came on a day the Monetary Policy Committee decided to reduce banks’ foreign exchange net position from 20 per cent to 10 per cent as part of the CBN strategy to curb the depreciation of the naira.

Meanwhile, the Joint National Assembly Committee on Finance is investigating why Nigerians should have a N1.09 trillion deficit in the 2009 budget after the poor implementation of this year’s budget.

In moving the Senate motion yesterday, Senator Bajomo said: “The Senate notes with serious concern the state of Nigerian economy as it affects the growing rate of the depreciation of the Naira, worried that the Naira has depreciated faster than it had appreciated over the last two years, aware that the cause of this depreciation is the consequence negative cash flow as a result of downward trend of oil price and further worsened by speculations in the foreign exchange market.”

Among senators who contributed to the motion were Senators Smart Adeyemi (PDP, Kogi West), Ayogu Eze (PDP, Enugu North), Ayo Arise (PDP, Ekiti North), Adeleke Mamora (AC, Lagos East) and the Deputy President of the Senate, Senator Ike Ekweremadu.

Ayogu Eze blamed the Naira crisis on the effects of the global economy. He warned that the failure of the Senate to take a more prudent approach to address the situation would lead to bigger economic problems for the country.

His words: “What has happened to the Naira is the impact of the global crisis. We invited the CBN governor here not quite a month ago and now the naira has started wobbling. We should go beyond rhetorics. If we do not take it serious, all the past gains of the last nine years will be wiped out. All the players must be summoned. If we do not do what is right, we are going to pay for it very soon.”

Smart Adeyemi on his part said: “While we are campaigning, we promised Nigerians that we would improve the economy. We owe Nigerians a duty to deliver. We should summon the CBN governor and the President’s economic team to come and explain to us what is happening to the Naira.”


CBN reduces Banks' forex holding to 10%

The Monetary Policy Committee yesterday decided to reduce banks foreign exchange net position from 20 per cent to 10 per cent to enable it  deal with the continuing depreciation of the naira.

The committee also decided that the  Central Bank (CBN) will henceforth participate actively in the daily interbank foreign exchange market by buying and selling forex through the two way quotes. This will now replace the Weekly Dutch Auction (WDAS).

In a communique at the end of the meeting of the Monetary Policy Committee, the CBN Governor, Professor Soludo said: “The sustained stability that has characterised the foreign exchange market in the last 24 months appeared to have come under threat since November 2008 largely due to the global economic and financial developments. The demand for foreign exchange at the WDAS has risen sharply since October as private inflows have shrunk and oil prices softened at the international market.

“In the light of the above, the Monetary Policy Committee decided as follows to leave the Monetary Policy Rate (MPR) unchanged at 9.75 per cent; Reduce banks’ foreign exchange net open position from 20.0 to 10.0 per cent of shareholders’ funds with effect from Monday December 15, 2008; and CBN to participate actively in the daily inter-bank foreign exchange market by buying and selling through the two-way quotes.”

“In conclusion, the committee noted the anxiety of participants in the foreign exchange market and will like to assure the public that the CBN remains committed to a stable exchange rate regime and will continue to meet demand for foreign exchange at market determined rates.”

“The committee noted the sharp rise in headline year-on-year inflation in October to 14.7 per cent from 13.0 per cent in September 2008, which is counter seasonal and driven by both food and non-food components. Similarly, core inflation rose to 7.9 per cent in October from 6.9 per cent in September. Staff projections indicate that the year-on-year headline inflation is not likely to moderate significantly in the remaining months of 2008.

“Aggregate output growth in the third quarter was estimated at 6.83 per cent compared with 5.23 per cent in the second quarter. The growth was driven largely by the non-oil sector, which grew by an estimated 9.16 per cent. However, output of the oil sector declined by 0.81 per cent. Current NBS estimate of real GDP growth for the fourth quarter of 2008 is 8.69 per cent, while the overall output growth for 2008 is estimated at 6.77 per cent compared with 6.40 per cent in 2007.

“Provisional data showed that growth in broad money (M2) moderated in October 2008. M2, which grew by 43.5 per cent, as at end-October, 2008 which when annualised translates to 52.2 per cent.

The growth in M2 has continued to be driven mainly by credit to the core private sector, which grew by 52.5 per cent (or 63.0 per cent annualised) as at end-October, 2008. Interest Rates Key interest rates moderated in late September through October following the implementation of the decisions of the Special MPC meeting held on September 18, 2008. The rates rose in early November but have since moderated.

“The committee noted with satisfaction that Nigerian banks were largely robust enough to withstand the effects of the financial turmoil. Whereas many banks abroad have been making losses and faced with potential bankruptcies, Nigerian banks have in fact been posting profits.

Nonetheless, there is in general a welcome recognition of the need to enhance regulatory and supervisory efforts to set up appropriate information profiles and risk management strategies in the banks.

The industry liquidity ratio declined from 52.95 per cent in September to 49.22 per cent in October 2008 but rose to 51.55 per cent in November. The capital adequacy ratio continued to be robust at 22.25 per cent in November, 2008.

“The MPC noted with satisfaction the level of external reserves at US$58.11 billion as at December 10, 2008. The committee also expressed concern about the effect of the continuing slide in oil prices on the domestic economy and assured that appropriate policy measures would be adopted to minimise the overall impact on the wider economy.

The general expectation is that in 2009 highly developed economies would post negative growth rates while emerging market economies are likely to register sharp slowdown as a consequence. Other developing countries are also expected to decelerate. In the circumstance, the policy responses of most developed and emerging economies have tended to focus on growth and financial stability.

Overall, the challenges facing the Nigerian economy are in respect of developments in the international oil market encompassing both slack demand from advanced economies and declining oil prices. If the current trend continues, Nigeria’s fiscal and external payments positions are likely to be further weakened in 2009.

It is, however, expected that the domestic non-oil sector will rise to the challenge to offset to some extent the slack from the external sector. The optimism stems from the expected buoyant agricultural output, improvement in infrastructure as financial resources flow to the sector, and other development-enhancing activities of the government.  

“The committee noted the continued weakening of the global economy despite the coordinated response by the fiscal authorities and central banks to the global financial crisis and the ensuing economic downturn.

Specifically, global unemployment has been on the rise, shortage of liquidity and acute scarcity of credit have remained visible in the financial institutions, while stock market developments have been marked by a high degree of fluctuation and corporations have continued to post financial losses.

With falling demand by developed economies, the international crude oil and other commodity prices have declined sharply during the preceding three months. Inflation, however, appeared to have moderated slightly in most developed economies and some emerging market economies.

“The committee also evaluated the outcomes of the policy decisions taken at its special meeting on September 18, 2008 and noted that the desired macroeconomic outcomes were largely achieved.  Inflation rose further in October contrary to the seasonal pattern, while the naira exchange rate depreciated in all segments of the foreign exchange market since November.

In addition, key interest rates rose during the review period after some moderation in September through October following the implementation of the decisions taken at the special meeting of the committee.

The MPC also expressed concern on the potential negative impact of the rapidly declining oil prices on the fiscal operations of the three tiers of government and the overall economy. Against this background, therefore, the overall macroeconomic outlook remains challenging.”

Lawmakers query N1.09trn 2009 budget deficit

Meanwhile, the Joint National Assembly Committee on Finance has embarked on an investigation into why the 2009 budget has a N1.09 trillion deficit, despite the meagre implementation of the 2008 budget by the Executive.

The House Committee on Finance at a press conference yesterday, said if the House could track over N450 billion of unspent budget from ministries and agencies of government in the 2007 budget that was said to be about 50 per cent implemented, then it is expected that the Ministry of Finance would track at least enough unspent money and internally generated revenue in the 60 per cent unimplemented 2008 budget to finance the deficit in the 2009 budget.

The committee announced an upcoming summit with ministries on the un-remittance of unspent monies and internally generated revenue by agencies that claim they are not statutorily compelled to remit to the Consolidated Revenue Fund.

He said the committee would also ask questions on the percentage of contribution of revenue to the coffers of government by agencies and reasons why the Finance Ministry continues to withhold appropriations for Ministries of Education and Health.

“For the first time, you will also appreciate that before now, the Budget Office simply sends a total sum, which is classified as independent revenue. For the first time, there has been available a detailed break down: Ministries by ministries and agencies by agencies.

“But what the expectations are, in terms of what their contributions should be on revenue for 2009, so using this as a guide, the Joint Finance Committees of the National Assembly are examining whether this (revenue from ministries of N306 billion) have been understated or overstated.

We started yesterday (Wednesday), we are continuing today (yesterday). We would ask quite a number of questions, you know. Because the beginning point, really, is we are trying to see how much we can get outside the line of oil. And it is actually to look inwards and see what gains we can make.

“So this committee is using this opportunity of this briefing to actually also extend our invitation. We are beginning our Finance Summit at the Sheraton Hotels on Monday and Tuesday, where quite a number of presentations will be made.

The presentations are tailored by the kind of information and the kinds of issues that are constitutional issues to be resolved obviously. There are issues about the best funding of either of health institutions or our tertiary institutions and the best funding for them vis-a-vis what they make and what they withhold.