Nigeria’s private sector faces a significant setback as credit allocation experiences a sharp decline of approximately N9.65 trillion from February to March 2024, signaling a strategic shift in the Central Bank of Nigeria’s (CBN) monetary policies.
According to credit and monetary statistics data from the CBN, there has been a 12% month-on-month decrease in credit to the private sector, with figures plummeting from N80.86 trillion in February to N71.21 trillion in March 2024. This downturn follows a period of robust growth, where private sector credit surged by 66% compared to the same period in 2023.
The tightened monetary policies by the CBN, led by Governor Olayemi Cardoso, are a response to global economic pressures and domestic inflationary concerns. This strategic pullback contrasts with the previous expansive credit flows under the former governor, Godwin Emefiele.
Simultaneously, the government sector witnesses a significant downturn in credit influx, with credit extended to the government plunging by 42% in just one month, dropping from N33.93 trillion in February to N19.59 trillion in March 2024. This contraction reflects a 29% decrease compared to the year 2023.
The recent announcement by Governor Cardoso indicates that the CBN will no longer provide Ways and Means to the Federal Government until previous loans are repaid. This decision follows a noticeable increase in fresh Ways and Means Borrowing in the last six months of 2023.
Late last year, the CBN suspended new loan applications under its Intervention Programme, representing a significant shift in its approach to development finance intervention funds. Additionally, the recent directive to Deposit Money Banks (DMBs) introduced a reduction in the loan-to-deposit ratio (LDR) to 50%, aligning with the CBN’s contractionary monetary approach.
Dr. Adetona Adedeji, the Acting Director of the Banking Supervision Department of the CBN, reaffirmed the bank’s decision to prioritize combating inflation over addressing rising unemployment rates, emphasizing the current focus on stabilizing the economy amidst challenging macroeconomic conditions.
While this contractionary approach aims to temper inflation, it raises concerns about its potential impact on economic growth, as both the private sector and government experience reduced financial inflows. This downturn could affect public projects and private investments, highlighting the delicate balance between inflation control and economic expansion