Don’t overspend on military operations, Sanusi warns FG

The Governor of the Central Bank of Nigeria, Mr. Lamido Sanusi, has cautioned the Federal Government against excessive spending on military operations in three states in the North-East, Borno, Adamawa and Yobe, where a state of emergency was declared last week.
Sanusi, while addressing journalists shortly after the end of a two-day Monetary Policy Committee meeting held at the CBN headquarters in Abuja, argued that excessive spending on military operations posed a major risk to the inflation outlook.
Headline inflation increased from 8.6 per cent in March to 9.1 per cent in April, remaining within the target single digit range for the fourth consecutive month in 2013.
The figure, according to the central bank boss, reflects a combination of base effect and the success of tight monetary policy, which have led to a muted growth in the monetary aggregates and exchange rate stability.
He said while the principal risks to the inflation outlook remained fiscal spending and possible pressures on the exchange rate from any attrition to reserves caused by declining revenues as a result of output leakages, there was the need for prudence in monetary policy action.
Sanusi said, “The committee noted with caution the high Gross Domestic Product growth projection in view of the extant risk factors such as widespread insecurity, weak infrastructure and probable flooding from the projected heavy rains in some parts of the country.
“The state of emergency in the North-East and the accompanying military operations in that axis have the potential to adversely affect economic activities generally, including agricultural production and food prices as well as consumer demand.
“In addition, the recent military action in the North-East will result in additional spending. Although the government has announced that there will be no supplementary budget, the Coordinating Minister for the Economy and Minister of Finance has already announced that there will be a drawdown on a contingency vote embedded in the 2013 budget to cover emergencies.
“Overall, the committee is of the view that government spending will constitute a major risk to the inflation and exchange rate outlook, thus advising prudence in monetary policy action at this time.”
The CBN governor also said the committee expressed concern over the low level of credit growth to the private sector and traced this to the crowding out effect of high growth in credit to the public sector.