Afrinvest advises monetary, fiscal authorities to rethink anti-inflation rules

Afrinvest West Africa Limited, a capital market holding company, has advised monetary and fiscal authorities to rethink their anti-inflation strategies to holistically address the surging inflation rate.

The Managing Director, Ike Chioke, disclosed this yesterday at the unveiling of the 2023 Nigerian Banking Sector Report entitled, ‘Getting Nigeria to Work Again’.

He explained that the monetary and fiscal authorities have been fixated on the control of money supply and selective tax reliefs. 

“In our view, an effective strategy for taming the high inflation rate would be one that addresses structural bottlenecks (notably, insecurity and infrastructural gaps), improves ease of doing business, and incentivises large-scale local production of agriculture and manufactured goods, alongside effective liquidity management and proper anchoring of market yields to the Monetary Policy Rate. 

“In all, we stress that failure to stem the surging inflation tide in the near term would result in a contagion financial sector crisis and, by extension, derail other segments of the economy from the growth path, given banks’ pivotal role as an economic bridge between the supply and demand segments of the economy,” he said.

 According to the report, Nigeria’s fiscal deterioration has continued unabated. After hitting the N70tn mark in 2022 due mainly to the N23.7tn addition from securitised Ways & Means liabilities, the total public debt profile nudged higher to N87.4tn in the first half of of this year.

“This, in addition to underwhelming revenue performance in first half of 2023 (actual revenue, N4.1tn, underperforms pro-rata target by 26.5 per cent, and 99 per cent of it, N4tn, was used to service debt) has further put Nigeria on the cusp of insolvency. 

“Against this backdrop, the new administration of President Bola Tinubu has introduced some policy measures to assuage the fiscal pressure, notable among which are the ‘partial’ removal of subsidy payment on Premium Motor Spirit, increase in education tax by 50 basis points to three per cent, and introduction of a 7.5 per cent Value Added Tax on diesel,” the report said.

Despite these measures, Afrinvest said it does not see a quick fix to the fiscal pressure in the near-term, given increasing internal and external pressure points on the economy and the time lag required for policy reforms to manifest gains. 

Panelists at the event – Founder/CEO, Outsource Global, Amal Hassan; Chief Executive Officer, Pinnacle Oil & Gas, Robert Dickerman; Cofounder/Chief Operations Officer, Piggyvest, Odunayo Eweniyi;  Head of Service, Edo State Government, Anthony Okungbowa and Director, Corporate Affairs, TGI Group, Sadiq Kassim – called on the government to take steps that will boost government revenue earning capacity and boost food security through support for the agriculture sector. 

Chief Executive Officer, Ministry of Finance Incorporated, Dr Armstrong Takang, said government took the right step by instituting forex reforms and freeing forex previously used to defend the naira.

He said the Federal Government had, in the past, lost so much forex trying to defend the naira, adding that the implementation of the ‘willing buyer, willing seller’ model preserved forex for the economy.

In its effort to unlock forex liquidity, the Federal Government, he asserted, is encouraging people with genuine forex to bring them back home for investment in the domestic economy.

He said many of the corporate assets were not paying dividend to the government, and that led to revenue loss. 

“The International Monetary Fund advised us that domestic resource mobilisation is key in our plan to boost revenue. Also, many of our corporate assets have not been paying dividends. We have oil and gas assets that are not performing optimally and that has to stop. We need to optimise assets lying dormant to boost capital position,” Takang said. 

The report said there was need for the new Central Bank of Nigeria leadership to be geared towards reversing the unorthodox policy measures of the last administration, restoring market confidence in CBN’s autonomy, and prioritising the core goals of price and exchange rate stability. 

“Nonetheless, we believe that achieving all these in a short term would be a herculean task, given that complementary fiscal policy actions are required for the CBN to record gains.

“In the meantime, we canvass that the authorities double down on efforts to check insecurity, curb oil theft, tame inflation, anchor market yield on MPR, and improve the business environment. Also, we believe that the sustained high demand for FX in the parallel market due to lingering weak supply in the official market, coupled with inefficient processing time, would continue to undermine the objective of these measures. 

“As regards the impact of the measures on the banking industry, we expect the re-introduction of the ‘willing buyer, willing seller’ model to support a modest positive upside for the FX transaction income of banks going forward,” the report added. 

The Banking Sector Report, said: “As the new CBN leadership takes over, Nigerians and the banking industry are on the lookout for a positive and timely turnaround of stifling banking regulations and major monetary indices – exchange rate, inflation rate, and Foreign Portfolio Investment & Foreign Direct Investment flows.”

The report also provided highlights of the 2022 Nigerian Banking Sector report, ‘Brace for Impact’ which coincided with the onset of fresh global risks as the receding COVID-19 pandemic left deep footprints. 

“This evolution of risks shifted focus from economy-stimulating policies to the introduction of guard rails for overheating economies. Specifically, the emergency adoption of the Modern Monetary Theory playbook, in response to the pandemic, dovetailed into a glut of financial liquidity. Although the broad stimulus deterred prolonged global recession, the absence of commensurate productivity boost drove real and financial sector prices higher and threatened real output recovery,” it said.

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