The Monetary Policy Committee is not happy with the National Assembly’s interference in crude benchmark.
The Monetary Policy Committee, MPC, of the Central Bank of Nigeria, CBN, rose from its 86th meeting on Tuesday with a call on the Federal Government to constitute an independent committee of experts mandated to set an acceptable benchmark output and price for the purpose of preparing the country’s annual budgets.
The CBN governor, Lamido Sanusi, said at the end of the meeting in Abuja that such an arrangement involving independent experts who are shielded from political interference would help forestall the rancour between the executive and legislative arms of government in recent times.
The two arms – Executive and Legislative- have, since the submission of the 2013 budget proposal by President Goodluck Jonathan, been embroiled in the debate on the appropriate crude oil price benchmark between $80 by the House of Representatives, $78 by the Senate and $75 by the Executive .
According to the apex bank’s governor, several countries, whose budgets are based on commodity price, adopt the Chilean model where the long term benchmark price of copper (its major export commodity) is determined by a committee of experts at a specialised institute established specifically for that purpose.
“Those benchmark prices and output are determined by the experts independent of the political process,” Mr. Sanusi said. “These prices are binding on both the fiscal authorities and the National Assembly.
“This idea that after going through a technical detailed process that allows the Ministry of Finance to come up with a particular number and the National Assembly sits down to say that it does not like that and prefers another number to increase it, is costly, because the country has not institutionalized the process.
“It would be good to not just have a benchmark, but also a legal framework for determining that benchmark and clarity so that the decision is not political. Increasing the benchmark to $78, $80 or $82 simply increases the amount of money that is spent and reduces the amount of money that could have been saved. And if for any reason output under-performs, it reduces fiscal flexibility and ability to respond in the event of any shock,” he said.
Mr. Sanusi reaffirmed his support of the $75 benchmark price as proposed for the 2013 budget, saying it has become even more justified considering that output projections may have been overly optimistic with the reduction in the production capacity by the Nigerian National Petroleum Corporation, NNPC, in recent times.
After a review of domestic and global economic conditions and financial environment as well as their impact on the country’s economy, the CBN boss noted the continued decline in global output, resulting austerity-driven euro-zone developments, weak recovery in some Asian economies, and slowdown in major emerging market economies.
He said the National Bureau of Statistics revised the real Gross Domestic Product, GDP, growth for last year downwards to 6.61 per cent from the earlier projection of 6.85 per cent,showing that the economy was experiencing unanticipated growth challenges.
The estimates revealed a real GDP growth rate of 6.48 per cent in the third quarter of 2012, up from 6.39 per cent in the second quarter, but lower than the 7.37 per cent recorded in the corresponding period of 2011.
The Committee noted the negative impact of the recent flooding in several parts of the country, current security challenges, and corruption scandals. The committee said these were posing serious downside risks to growth in the near-to-medium term.
On inflationary pressures, Mr. Sanusi said that though the level moderated in the third quarter of 2012, it re-emerged last month, with year-on-year headline inflation reaching 11.70 per cent from 11.3 per cent the previous month, while food inflation increased to 11.1 per cent from 10.2 per cent in the same period.
He said developments in the global economy were characterized by general uncertainty on the back of the deceleration in global growth, sustained by the fragile financial conditions, weakening labour and housing markets in emerging economies, with dire implications for the domestic economy demand careful consideration of the appropriate monetary policy.
While commending efforts to keep the fiscal deficit within the proposed limit in the 2012 budget as well as to improve government revenue profile, the committee called on government to significantly increase capital spending and focus on improving governance and transparency in the public service.