G24 charges central banks of developing countries to coordinate
•‘Why govt must scrap excess crude’
The G24 members have urged central banks of Emerging Markets and Developing Economies (EMDEs) to coordinate inflation responses in a responsible manner to avoid adverse economic spillovers on member countries.
The G24 said though the pushback from COVID-19 is receding, there is still no calm after the storm.
“COVID-19 is waning, but the global economic outlook has severely darkened as multiple compounding crises unfold. Global growth is slowing,” it said.
The group noted that poverty, hunger, water scarcity, cost of living pressures and food and energy insecurity have increased alarmingly, deepening the existing challenges in the global economy, and exacerbating vulnerabilities in fragile states.
“There will be no calm after the COVID-19 storm,” said Alvaro González Ricci, Governor of the Bank of Guatemala, and Chair of the Group of 24 countries, which gathered this week to discuss responses to the situation.
“Financial conditions are worsening. Policymakers, especially in advanced economies, have rapidly moved to curb higher than expected inflation by tightening monetary policy with sharp and repeated increases in interest rates, which bring currency depreciations and large capital outflows in emerging markets and developing economies (EMDEs),” González said.
González stressed that the war in Ukraine compounds the inflation problem by reducing global food supplies, and sparking energy and fertilizer shortages, disproportionately harming vulnerable economies and the poor, while adding significantly to fiscal and economic pressures. A recession would intensify these challenges on all fronts and raises the need to ensure adequate lending resources are available.
G24 members discussed concerns that international financial institutions have already stretched their lending to manage COVID and may not be prepared to respond to the present mix of compounding crises.
“Warning lights are flashing and we must urge proactive efforts to expand their lending resources to support a more difficult recovery,” González said.
G24 members called for scaled-up support, including adequate emergency financing, from the IMF, the World Bank Group, and other international financial institutions to provide timely and proper liquidity support and development financing, particularly for lower-income countries and fragile economies.
They called for the timely completion of the IMFs 16th General Review of Quotas to increase the IMF’s quota resources, which would reduce its dependence on borrowed resources and boost its lending capacity in times of crisis.
The G24 urged correcting the regressive and policy character of the IMFs surcharge policy and equally asked the World Bank and other multilateral development banks to take steps, sooner than later, to manage risks and leverage their capital more effectively while exploring how to increase lending capacity through capital increases or other options.
But the Chief Executive Officer of Dairy Hills Limited, Emmanuel Kelvin has charged the Federal Government to work with the Governors’ Forum to stop the capping of potential revenue by the Excess Crude Account (ECA).
He also faulted the $73 crude oil benchmark saying it is unrealistic considering the prevailing circumstances.
“How can the Federal Government continue with a benchmark price of $73, refuse to work with the Nigeria Governors Forum to eliminate the Excess Crude Account that caps the potential of revenues for Production Sharing Contract (PSC), and International Joint Venture Contract in post-PIA to raise the amount of income paid by NNPC less the Direct Sale Direct Purchase (DSDP) to the Federation Account,” he stated.
He added that the National Assembly has failed to challenge the viability of the budget proposal presented by the President, which ignores salient points.
He stressed the imperative to change the exchange rate model from the fixed peg to a floating mechanism, converge the exchange rates and remove the cap on oil income by abolishing ECA.
He called for the amendment of the Fiscal Act to raise the ratio of what the government is allowed to raise through debt considering that debt to GDP ratio is currently at 24%, debt servicing to government revenue is currently at 120%, and debt servicing has crossed N2 trillion.
Emmanuel further stated that the assumption of the debt to GDP ratio is still under the 40% limit as contained in the Fiscal Responsibility Act, without any recourse to the reality that the entire capital expenditure has been wiped off, and the government revenues are unable to meet up with the need of the budget, without resorting to loans,
This, according to him, is an indication of how out of touch this administration is with an impending fiscal cliff, looming around the corner.
Emmanuel also argued that the options of the Central Bank of Nigeria (CBN) are also limited saying, increasing the interest rates to curb inflation is simply not enough while also flaying the CBN for going far about the required debt to the Federal Government in ways and means.
This comes as the borrowing options available to the Federal Government have continued to shrink because the international lenders and donor countries are equally battling for survival as the global economy continues to pass through hard times.
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