Central Bank of Nigeria (CBN) yesterday insisted that its aggressive development finance activities since the outbreak of COVID-19 were aimed at stabilising the economy as well as to support the efforts of the federal government to stimulate economic activities.
CBN stated this in a statement titled: “Re: Matters of Urgent Attention,” signed by its Director, Corporate Communications, Mr. Isaac Okorafor, which was a direct response to an earlier statement by the Nigeria Economic Summit Group (NESG) which criticised some of its policies, especially on foreign exchange management.
NESG also requested President Muhammadu Buhari to withhold assent to the repealed and re-enacted Bank and Other Financial Institutions Act (BOFIA) 2020, recently passed by the National Assembly.
It said the bill contains certain provisions that breached the constitution, confers immunity on CBN officials and exempts actions by CBN from judicial review.
However, the bank replied that the impact of COVID-19 on countries across the world resulted in a significant downturn in the global economy. Consequently, countries including Nigeria were forced to impose lockdown measures in order to contain the spread of the pandemic.
This, it explained, resulted in depressed economic activity in the first half of the year.
The apex bank said: “In response to these unfortunate events across the globe, central banks embarked on measures aimed at stabilising their respective economies by reducing lending rates, which declined to negative territory in several advanced economies, in addition to increasing the scale of their asset purchase programmes.
“Indeed, after reducing its Federal Funds rate to zero per cent, the US Federal Reserve Bank implemented a huge securities purchase programme, which included the purchase of corporate bonds (including those below investment grades).
“The Reserve Bank also provided credit facilities to non-bank institutions which included money market funds and corporations. The balance sheet of the US Federal Reserve in support of these activities increased by over $3 trillion, while the European Central Bank expanded its balance sheet by over $1 trillion.”
For Nigeria, it pointed out that the impact of the lockdown on economic activities resulted in over 60 per cent reduction in revenue due to the federation account, a significant drop in foreign currency inflows, which led to downward adjustments in the naira/dollar exchange rate and a rise in inflation due to the exchange rate pass-through effect of imported inflation.
Therefore, the bank noted that it, like other central banks across the world, had to embark on extraordinary measures in order to stabilise the economy from an extraordinary shock, by taking steps to increase the flow of credit to critical sectors of the economy, in order to enable faster recovery of the economy.
In addition, it stated, the measures taken were also intended to prevent the economic crisis from spilling into a major financial crisis.
Some of these, it listed to include a one-year extension of a moratorium on principal repayments for CBN intervention facilities; strengthening of the loan to deposit ratio policy, which it stated resulted in a significant rise in loans provided by financial institutions to banking customers; the creation of an N50 billion target credit facility for affected households and small and medium enterprises through the NIRSAL Microfinance Bank; among others.
“Analysts expected GDP growth to decline by 7.4 per cent but the impact of the measures by the monetary and fiscal authorities helped to reduce this decline to 6.1 per cent.
“This decline was less severe than the decline experienced in other economies such as the United States, South Africa, and India which saw significant declines in growth by 32 per cent, 52 per cent and 23 per cent respectively.
“We do expect that with the phase-out of the lockdown measures, GDP growth in the third quarter will be much better than that of the second quarter, due to the impact of the measures being implemented by the monetary and fiscal authorities.
“CBN also feels compelled to let Nigerians know that in spite of the cordial and open relations between both organisations, NESG could have raised its allegations directly with us but never did,” it said.
On its development finance activities, the bank said it was comforted by NESG’s “reluctant admission that many central banks around the world are also engaging in similar actions.”
According to it, “CBN engaged in development finance in order to address the credit needs of the sectors critical to improving livelihoods, reducing poverty, and promoting inclusive growth.
“These goals have become doubly important in light of the significant shocks to the economy following the ongoing COVID-19 pandemic. In pursuit of transparency, CBN usually publishes disbursements made under these activities in our Economic Reports.
“Although the bourgeoisies atop NESG may not feel the impact of the bank’s development finance activities, many ordinary Nigerians, including smallholder farmers, households, and medium-scale entrepreneurs across the country know better.
“As NESG may be aware, as a result of the COVID-19 pandemic, Vietnam, Cambodia, India and Thailand placed export restrictions on the exports of critical food items, including rice and eggs.
“With these disruptions, the Nigerian economy could have faced a major food crisis, but for the government’s intervention programmes in the agriculture sector.”
Furthermore, it stated that by alluding to the fact that money could not address constraints in the agriculture sector, “NESG failed to realise that access to credit is listed among the three major challenges faced by farmers and businesses in Nigeria.”
It also faulted NESG’s allegation that CBN’s lending process was devoid of a proper framework, saying recipients of intervention funds from CBN go through an expansive due diligence process through participating financial institutions (PFI), following which an additional assessment process is embarked upon by CBN before disbursements were made.
Reacting to NESG’s comment on the revisions to BOFIA Act, the bank described the group’s position as “total ignorance or malicious intent on the part of NESG.”
It explained: “First, the provision they refer to as being currently conceived as part of the new BOFIA already exists as Section 53 in the old Act, which is now Section 51 in the amended Act passed by the National Assembly.
“The current bill has not proposed any changes to that section at all. Second, contrary to their misleading anxiety and associated reportage, the provision of Section 51 does not purport to confer immunity on the Governor of the Central Bank of Nigeria like that which obtains for state governors.
“Rather, this provision protects the federal government, CBN and their respective officials against adverse claims for actions or omission in exercise of powers in good faith under BOFIA and other specified statutes including the Central Bank of Nigeria Act and regulations made thereunder.”
It said the importance of the said provision was to set a threshold against which suits against public officers must be filtered, such that for a suit to be maintainable it must scale that threshold by proving bad faith on the part of the pubic officer.
It insisted that it is not a bar against legal action.
The apex bank added: “Indeed, a review of the legislative history of BOFIA will readily show that the said provision also appeared as Section 49(1) of the then BOFIA of 1991.
Further diggings also readily show that the same law is employed in other legislations including the extant: Central Bank of Nigeria Act 2007 (Section 52); the NDIC Act 2006 (Section 55) and the Investments and Securities Act 2007(Section 302).
“A similar provision is in the AMCON (Amendment) Act 2020, as it had been noticed that debtors and the like simply rush to court, obtain injunctions and stop orderly resolution of cases and proper implementation of the law.
“The false alarm raised by the Nigerian Economic Summit Group raises serious credibility questions on the actions of the group, as its comments, which have been circulated across the globe, significantly harmed the credibility of the Governor and CBN as an institution.”
It also expressed disappointment about the position of NESG on the federal government’s decision to close its land border.
With respect to foreign exchange, the bank explained that CBN operates two windows: wholesale and retail.
According to it, in the wholesale window, banks are allocated forex weekly, which is meant to be allocated to their customers at their discretion, reflecting customer size and distributive efficiency, for final sale to parents, paying school fees, patients settling medical bills abroad, SME traders importing small-scale inputs and raw materials, and general travelers for business and personal trips.
“CBN also allocates a certain amount of forex to licensed BDCs per week, who resell to small-scale users. In both categories, CBN does not know the final buyers of this forex.
“In the retail window, banks submit a detailed list of applicants who are then allocated forex based on availability. Given that these submissions are first scrutinised by the banks and are accompanied by the provision of significant documentation, we do not understand the extra transparency being called for by NESG,” it added.