The Lagos Chamber of Commerce and Industry (LCCI) has criticised recommendations by the International Monetary Fund (IMF) to the Federal Government to further tighten the monetary policy to reduce inflation to single digit.
Director-General, LCCI, Mr Muda Yusuf, said this in an interview with The Tide source in Lagos, yesterday.
Yusuf noted that calling for further tightening of monetary policy was inappropriate, considering the prevailing high interest rate which impedes competitiveness and growth of the nation’s real sector.
Recall that an IMF report released on March 7 on the Nigerian Economy advised the Central Bank of Nigeria (CBN) to maintain its tightening of Monetary Policy until inflation was reduced to single digit.
The IMF recommended a higher monetary policy rate, a symmetric application of reserve requirements and the abrogation of direct Central Bank financing of the economy.
The apex bank had maintained a 14 per cent Monetary Policy Rate (interest rate), Cash Reserve Ratio at 22.50 per cent and Liquidity Ratio at 30 per cent, since July 26, 2016, to tame the nation’s inflation.
According to data from the National Bureau of Statistics, Nigeria’s inflation rate stood at 15.13 per cent as at January.
“In an economy where interest rate is already between 25-35 per cent, calling for a further tightening of monetary policy should not be contemplated at this time.
“Indeed, the high non-performing loans in the banking system is partly a consequence of the exorbitant interest rate in the economy,” Yusuf said.
The LCCI boss also objected to the IMF’s call for increase in excise duty, stating that such would do more harm than good to the economy.
“One of the most vulnerable sectors of the Nigerian economy is the manufacturing sector.
“The sector is grappling with high operating costs, high energy costs, weak purchasing power of consumers, an unfriendly tax environment, influx of smuggled products and high cost of logistics,” he said.
According to him, increasing the excise duty will conflict with the vision of the Economic Recovery and Growth Plan (ERGP) which focuses on economic diversification, job creation and local value addition.
Yusuf said the chamber also disagreed with the IMF’s proposal that the CBN should not get involved in direct financing of the economy.
According to him, CBN’s intervention has been beneficial to many real sector investors, adding that it has filled critical gaps in the nation’s financial markets.
“It makes funds available at single digit interest rates, provides long term funds of up to seven or more years, gives investors opportunities for debt refinancing, and provides financing for small businesses.
“The CBN intervention funds have been helpful to investors and only need to be improved, not scrapped, as advised by the IMF,” Yusuf said.
He noted that some of the recommendations did not take into account the context in which domestic investors were operating.
Yusuf added that contextual factors and considerations were imperative to ensure appropriate policies for an economy.
He, however, lauded the Fund’s recommendation that the Federal Government should ensure better transparency in the Oil and Gas sector of the economy.
The LCCI chief commended the call by the Fund that the CBN should reduce the multiplicity of exchange rates and take steps to mitigate banking sector risks and enforce prudential guidelines.
Yusuf commended the IMF for its recommendation that the National Assembly should confirm the appointments of members of the Monetary Policy Committee (MPC) and the Board of the CBN.
He stressed that the recommendations would serve the cause of economic stability and growth.