Central bankers in Africa’s two largest economies are taking diverging policy stances, even as they get slammed by similar headwinds of low growth and high unemployment.
While Nigeria seems to be combining monetary policy with a developmental bent similar to fiscal policy, South Africa just made a fresh vow to erect an impenetrable wall between the two to ensure they never collide.
The South African Reserve Bank and finance ministry issued a joint statement Thursday where both institutions vowed to respect each other’s independence.
The Reserve Bank will focus on the primary mandate of any central bank and steer clear of interfering with fiscal policy matters while the finance ministry will not meddle in areas of monetary policy.
The South African arrangement which shares similarities with the structures in place in developed economies has little semblance with the arrangement in neighbouring Nigeria.
In Nigeria, the central bank is gradually taking the role of a de facto development bank that is stimulating economic growth and employment.
“Central banks can occasionally provide support for fiscal authorities but this should not be seen as the norm,” a research head at a Lagos-based pension fund who pleaded anonymity told BusinessDay. “In our case, it has gone on for four straight years and shows no sign of slowing.”
The source said that the CBN runs the risk of becoming an extension of the Federal Government.
“The problem is the Senate has not tried to plug that gap. How much is the CBN lending to the FG? The Senate should be auditing the number every year because the CBN would have to curtail the pressure it is facing,” the person said.
But the Central Bank of Nigeria’s new burden has been borne out of necessity, Johnson Chukwu, founder and CEO of Cowry Asset Management Limited, posited.
“The reason we are seeing this in the Nigerian economy is that the fiscal authorities have been relatively silent and nature abhors vacuum,” Chukwu said.
He explained that although the resources of the monetary authorities are being stretched, the availability of a finance minister active on carrying out the fiscal mandate would allow the CBN return to its core function.
The apex bank has since 2014 devoted itself to programmes such as the Anchor Borrowers’ Programme, Real Sector Support Facility (RSSF), Electricity Market Stabilisation Facility, Creative Industry Financing Initiative and several others.
The bank regulator, which has become more intent on interventions in key sectors to grow the economy, facilitate job-creation, and create credit, says the pursuit has been in a bid to “ensure that the CBN is more people focused”. Godwin Emefiele, CBN governor, said this in June while outlining the apex bank’s policy thrust over his second term.
The central bank would still remain committed to the same over the next five years. But the situation though with its perks is not without downsides.
Experts warned that central bank’s development mandate could crowd out the real sector.
“What happens is there is distortion in the market when the CBN has to lend at single digit to certain sectors while official interest rate is at double digit to curb inflation,” a BusinessDay source said.
The central bank last Thursday released the guideline on regulatory measures to improve lending to the real sector of the Nigerian economy. The policy mandates all Deposit Money Banks to maintain a minimum Loan to Deposit Ratio (LDR) of 60 percent by September 30, 2019.
The bank said it would penalise non-compliance with a levy of additional Cash Reserve Requirement (CRR) of up to 50 percent of the lending shortfall of the target LDR.
Although the policy aims at boosting real sector growth by making credit available to businesses, experts fear the unintended consequences of increasing banks’ bad loan books as infrastructural challenges which have been a drag on company performance remain.