May 27, 2018

Inflation ti take over Naija – Gboyega Tunde

Inflation ti take over Naija – Gboyega Tunde

MONETARY POLICY COMMITTEE (MPC) RAISES MONETARY POLICY RATE FROM 11% TO 12%
At the monetary policy committee (MPC) meeting held during the week (Monday/Tuesday) they finally decided to increase the Monetary Policy Rate (MPR) (the base rate which CBN uses to set its lending/borrowing rates) from 11% to 12%.
What is interesting about the rate increase is that it comes exactly two months after the same MPC reduced the rate from 13% to 11% with the initial intention of the rate cut spurring lending by Banks? We all know the answer to whether that move worked or not? (Trust me… it didn’t… as most banks just carry face comot…).

Sabi Business 1

But anyway from a layman’s point of view, as inflation is now at 11.4% this means that most if not all your fixed income instruments (treasury bills, bonds etc.) are generating a negative real return (i.e. Rate of return – inflation rate). CBN realized that before we get to the point where … “inflation ti take over” something had to be done. How best to tackle this – increase MPR! So it did!
It also increased the cash reserve requirement (CRR) – the specified minimum fraction of total deposits of customers which banks have to hold as cash reserves or deposits with CBN from 20% to 22.5% – effectively mopping up about N400Billion in liquidity from banks.
The fact that we’ve seen a policy reversal in less than two months speaks volumes of the MPC’s ability to be adaptable (if need be?). Now if only someone would tell them that they forgot to do something about the exchange rate… (or maybe they’re thinking that oil is heading back to $70/barrel?).
SENATE PASSES 2016 BUDGET AFTER CUTTING CAPEX BY 14%,
Our beloved 2016 budget must take the award for the budget that went through the most phases before it got passed and if you think padding was the only phase, wait for it. The 2016 budget actually went through the following:
1) Proposed 2) Missing 3) Changeling (… remember the Angelina Jolie film) 4) Dare Art- Alade (…You’re not the budget we used to know…) 5) Chelsea FC (… we go dey manage wetin we see till season end!) 6) Boyz II Men (… End of the road – eventual passage) 7)GODWIN (… I don get alert… for all the ministries)
It’s been finally passed Ladies and Gentlemen even if it took a whole 80+ days into the year but finally we have lift-off. In order not to bore you – the summary of the amendments are in the table below:
2016 Budget Item Approved by Senate MTEF 2016 Variance
Benchmark Oil Price $38 $38
Exchange Rate N197/$ N197/$ –
Oil Production (bpd) 2.2million 2.2 million –
Total Expenditure (N) 6.060 trillion 6.077 trillion -0.3% (N17Billion)
Recurrent Expenditure (N) 2.646 trillion 2.646 trillion –
Capital Expenditure (N) 1.587 trillion 1.846 trillion -14.1% (N259 Billion)
Statutory Transfers (N) 351.37 Billion 351.37 Billion –
Debt Service (N) 1.475 trillion 1.475 trillion –
Budget Deficit 2.2 trillion 2.2 trillion

According to the NASS, a total of N17billion was identified as errors, omissions etc particularly in the areas of personnel cost. Now I’m curious as to why it was only N17billion they identified? Not more? Speaking of personnel costs, the NASS has personnel costs of N115billion – divided by 469 (109 Senators; 360 Legislators) that’s an average cost of N242.203m per NASS member annually (over N20m monthly)… forget Chevron or Mobikl! … I know where I want to work I grow up… in my next life!!
Anyway, after wondering why some people (NASS members) have all the luck… It struck me that recurrent expenditure stayed the same… and capital expenditure dropped by 15%. Now if capital expenditure is required to develop the infrastructure that ultimately grows your economy (… think roads, power, rail etc.) why is this figure shrinking? And why should it? With all the so-called inflation/padding/ cushioning-up of the budget… why didn’t it affect recurrent expenditure? Do we as a nation realize that’s less money (N259 billion) to spend… to fix power (Oya lie that you’re not running a generator as we speak…), roads, rail etc and we all seem comfortable with this? Na wa oo.
Well I hope that at some point our love affair with recurrent expenditure will become like the “Roxette” song… it must’ve been love… but it’s over now!”

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