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.
