By United Capital Research
After the Nigerian economy slipped into recession in Q2-16, policy efforts have been broadly geared at restoring business confidence and sustainable growth.
To stimulate economic activities, fiscal authorities opted for a large budget, embarking on a massive borrowing scheme to reflate the economy.
The monetary authority on the flip side took a hawkish stance, raised policy rate to 14% and embarked on an aggressive mop-up exercise, determined to arrest FX liquidity crisis and galloping inflation.
A combination of huge government borrowing and tight monetary policy drove yields to record levels, averaging 17.0% in 2017 (vs. 13.4% in 2016), resulting in a monumental deployment of funds to government securities while crowding out private sector credit.
Credit to government as at Oct-2017 rose 179% to N5.3tn (vs. N1.9tn Nov-2015) while credit to the private sector stayed flattish, up marginally by 0.17% to N21.9tn in Oct-17.
Going into 2018, two factors will determine the flow of funds. These include a near-term expectation for the CBN to cut rates if headline inflation moderates faster and the FG’s move to refinance a portion of its domestic debt with foreign borrowing pulls through.
Supported by sustained improvement in the local economy lately, credit to the private sector looks set to improve in 2018.
Adedapo Adesanya