Nigeria’s central bank has fallen victim to a battle between President Muhammadu Buhari and his parliament.
The Monetary Policy Committee won’t meet as scheduled this week because it lacks a quorum after the Senate refused to approve Buhari’s nominees for the panel, meaning the central bank couldn’t formally set interest rates. That setback adds to the economic fallout from a longstanding political standoff: lawmakers are threatening to delay his budget for a third year amid acrimony over who is to blame for the impasse and haggling over allocations.
At the heart of the dispute is not only a supremacy battle, but an anti-corruption campaign that helped Buhari get elected in 2015 and that some lawmakers call a witch-hunt. Legislators also want projects in their constituencies funded and implemented before next year’s elections. The stalemate may jeopardize efforts to help recovery in an economy that contracted by 1.6 percent in 2016 and has yet to deal with risks that may come with the February 2019 vote.
The standoff is “a key political risk for Nigeria this year as it may get in the way of the effective functioning of the economy,” said Razia Khan, the head of macroeconomic research at Standard Chartered Bank Plc in London. “The belief is that in time the new MPC members will be appointed. If we get to the next set of meetings and they still can’t be held, there would be some disquiet among investors and concerns about the workability of Nigeria’s political system.”
Presidential spokesman Garba Shehu declined to comment when phoned on Monday and said he hadn’t been briefed on the matter.
What Our Economists Say
The cancelled MPC meeting is likely to reinforce the view that the current economic downturn has been worsened by poor policy management. The MPC is likely to have held rates at 14 percent if it had been able to meet but the prospects of rate cuts at its March and May meeting now looks more unlikely as it may take time to reach consensus on a change of policy once the committee has convened.
-Mark Bohlund, Bloomberg Economics
So far, markets have shrugged off the dispute and are betting the economic recovery will continue. Nigerian stocks have risen 18 percent this year in dollar terms, the most globally, according to data compiled by Bloomberg.
Rafiu Ibrahim, head of the Senate’s banking committee, said last week the body has an “issue with the executive.”
In the absence of a MPC meeting, the central bank’s key rate remains at 14 percent, where it’s been since July 2016, Governor Godwin Emefiele said in a statement Monday. That’s despite remarks by Emefiele in November that the committee may consider loosening policy early this year. This is the first time in at least two years that a scheduled MPC meeting didn’t take place
Even more important, according to Standard Chartered’s Khan, is the approval of the 2018 budget, in which a third of the spending is earmarked for investment in infrastructure to help spur economic growth.
“The budget has a much more immediate impact on the economy that anything the newly formulated MPC could do,” she said.
The impasse over so-called constituency projects may determine when the budget is approved, according to Clement Nwankwo, executive director of the Abuja-based Policy and Legal Advocacy Centre.
The legislature had approved the projects and the executive refused to implement, Nwankwo said. “The view of National Assembly members is that that aspect of the budget has been singled out for neglect,” he said.
The Senate has twice rejected Buhari’s nomination of Ibrahim Magu as chairman of the anti-graft agency, the Economic and Financial Crimes Commission. Buhari left Magu to continue running the agency in an acting capacity, angering lawmakers. At the same time, the EFCC is trying to pursue a case of false declaration of assets against the Senate President Bukola Saraki, Nigeria’s third-most senior public official after the president and his deputy.
Saraki’s trial and Magu’s confirmation are symptoms “of how the legislature has been fighting for its own independence and it feels that the executive and its agencies are undermining its authority,” Oluseun Onigbinde, head of Lagos-based BudgIT, a civic group that lobbies for government transparency, said.