As widely expected, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) left its key policy instruments unchanged in the final meeting of 2018. The structure and tone of the 2,373 worded communique followed similar pattern of past communiques, a prerequisite for entrenching clarity and consistency in monetary policy communication. The average word length of 5.3, average sentence length of 26.9 and average vocabulary level of 5.7 were in the range of the last two communiques.
In discussing fiscal policy, the MPC made reference to the 2018 budget five times, with a total word length of 33 used to talk about the budget. This implies that the committee dedicated 1.39percent of the content of its last communique to fiscal policy. What is however of interest is the context in which the MPC referred to the 2018 capital budget.
First, the committee opined that implementation of the 2018 capital budget was one of the reasons why the Manufacturing and Non-Manufacturing Purchasing Managers Indexes (PMI) increased in October 2018. However, the extent to which the execution of the 2018 capital budget impacted the PMI may be negligible given the slow pace of releases to the Ministries, Departments and Agencies (MDAs). Where cash-backings have been done, the procurement process needs to be followed for transparency and accountability. Indeed, there are MDAs that have opened bids for their projects but contracts cannot be awarded because of lack of funds. It is also a common occurrence that some MDAs use part of their released capital votes to meet recurring obligations, especially funding of local and international travels by their political heads.
Second, the committee noted that even though output recovery remains fragile, the effective implementation of the 2018 capital budget is one of the factors that will improve the investment climate and reduce unemployment. Yet, the performance of the budget so far remains an issue given the poor releases to MDAs because of the revenue predicament facing the government. Although some priority sectors like works, power and housing, agriculture and water resources have received reasonable releases of late, they should by now be finalizing their procurement processes and awarding contracts to deserved contractors. Because the effects will not be contemporaneous, most of the projects that will be implemented, when completed, will start having the desired impact months from now.
Third, the committee posited that sustaining the implementation of the 2018 budget is one of the ways to ameliorate the supply side constraints facing the economy. On the contrary however, a drastic improvement in execution of the budget is what is required. This is because the current pace of implementation, if sustained, may result in a very dismal budget performance by the end of the 2018 fiscal year. Already, most of the MDAs were asked to roll-over between 50-60percent of their planned projects for 2018 to their 2019 budget proposal.
Fourth, the committee suggested that the effective implementation of the 2018 budget is one of the factors that will redirect the economy on a path of inclusive and sustainable growth. This however may not be the case owing to factors discussed previously. While personnel budget is being implemented 100percent, MDAs have received between five-six months of their overheads, but capital releases have been rather disappointing, especially for the ones not categorized in the top-tier. The reality is that the implementation of the 2018 budget is being impaired by revenue challenges facing the government.
Finally, the committee noted that the increased pace of implementation of the 2018 Federal government budget is one of the factors that will impact the outlook for inflation for the rest of the year. This view is in tandem with expectations of some analysts who opine that the government may improve on cash releases to MDAs going into an election year. While this is the dominant view, even among sources in the fiscal environment, it remains to be seen the magnitude that this will happen. Should the MDAs get improved releases in the next two months, the inflationary impact may be felt from February 2019 due to lag effects.
In conclusion, the context in which the MPC talked about the 2018 capital budget in its last communique may not be a true reflection of the slow pace of implementation due to paucity of funds to the MDAs.
Ekor is Senior Economist and Managing Partner of Ecopol Associates Limited and writes from Abuja
Tags: Monetary Policy Committee