FG’s excessive spending weakening monetary policy, analysts warn
Amid ongoing economic challenges, a member of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC), Murtala Sabo Sagagi, has cautioned about excessive government spending, identifying it as a major impediment to effective monetary policy implementation in Nigeria.
According to the newly released personal statements of MPC members following the 298th meeting, Sagagi emphasized that the inability to control fiscal expenditures continues to weaken the transmission of monetary policy measures, making inflation control and exchange rate stability difficult to achieve.
In his statement at the November 2024 MPC meeting, Sagagi outlined multiple structural barriers hindering economic growth, including weak institutions and the widespread use of cash by both the government and the public.
He warned that these factors, coupled with geopolitical tensions and excessive spending, are preventing the full realization of Nigeria’s ambitious goal of a $1 trillion economy.
“The legacy issues that constrained the sustainable growth of the Nigerian economy are yet to be overcome even with the massive reforms implemented by the government,” Sagagi noted.
Despite the CBN’s aggressive monetary tightening measures, Sagagi stressed that the lack of fiscal discipline undermines these efforts, limiting their effectiveness in stabilizing the naira and curbing inflation.
“The excess spending by the government is one of the biggest monetary policy challenges in the country,” he added.
Sagagi highlighted that while the CBN has remained committed to policies aimed at ensuring price and foreign exchange stability, these policies require complementary fiscal discipline to yield the desired results.
Echoing similar concerns, Philip Ikeazor, another MPC member and CBN’s Deputy Governor for Financial System Stability, emphasized that Nigeria’s high inflation remains a product of fiscal mismanagement, excessive government spending, and external pressures such as geopolitical tensions and global inflationary trends.
“In the last MPC meeting, I provided forward guidance on the intention to support a hike in rates if the fiscal actions of the Sub-national Governments continue to weaken the effective transmission of monetary policy,” Ikeazor said.
He highlighted those frequent fiscal injections by sub-national governments have been a major driver of inflation persistence in the economy. To counter these effects, Ikeazor advocated for a 50-basis-point increase in the Monetary Policy Rate (MPR), although the majority of MPC members opted for a 25-basis-point hike.
Both Sagagi and Ikeazor urged the federal government to prioritize fiscal discipline by reducing recurrent expenditures and focusing on policies that enhance domestic productivity.
Sagagi recommended a stronger alignment between monetary and fiscal policies to ensure that efforts to stabilize inflation and the exchange rate are not counteracted by unchecked government spending.
Ikeazor, on the other hand, called for more decisive monetary policy actions to curb inflation and maintain economic stability.
He acknowledged that monetary tightening may come at the expense of short-term economic growth but argued that it is necessary to restore macroeconomic stability and investor confidence.
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