The Central Bank of Nigeria (CBN) is getting weary of the likely risk to monetary management by the injection of the proposed public expenditure of N4.23 trillion. About N1.39 trillion deficit in the budget is expected to be financed partly with domestic and external borrowings.

Assistant Director, Research Department, CBN, Adebayo Idowu, said financing of significant domestic portion of the budget through the issuance of Federal Government Bonds and drawdown on the excess crude account has adverse implications for inflation, interest and exchange rates.

Speaking during a budget conference organised by the Chartered Institute of Bankers of Nigeria (CIBN), Idowu said the primary objectives of macroeconomic policies across the globe are to ensure economic growth and development within a low and stable inflationary environment. For developing and emerging market economies, the realisation of sustainable growth and development requires a high level macroeconomic policy consistency and co-ordination between the fiscal and monetary authorities.

He said fiscal reforms by the Federal Government since 2002 have continued to create increasing institutional co-ordination and policy consistencies between monetary and fiscal authorities as seen in positive macroeconomic outcomes.

Idowu explained that Budget 2011 was formulated against the backdrop of weak global economic recovery with the main thrust of attracting foreign investment and facilitating private sector growth as catalysts for wealth creation, employment generation and rapid economic growth. Consistent with the fiscal policy, the CBN initiated accommodative monetary management, which was expected to spur the growth of credit to the private sector and ensure a turn-around of manufacturing activities to bolster job creation. This presentation is to highlight the fiscal and monetary policy consistencies in the 2011 Budget within the context of the medium-term macroeconomic framework.

He said efficient and effective implementation of both policies requires consistency and co-ordination to avoid backlash on the economy. Idowu said interaction between the CBN and the fiscal authority are in the areas of investing in economic development initiatives; fiscal spending; financing of associated deficits. Both authorities have continued to embrace the medium-term outlook in policy formulation to minimise the problem of time inconsistencies by shortening the effect of policies.

The fiscal drive to boost job creation and employment by earmarking resources to execute public works/projects remain in tandem with the subsisting CBN intervention fund designed to assist Small and Medium Scale Enterprises (SMSE), aviation and power sectors to bolster employment. In addition, the accommodative stance to ease credit to support onward lending to the private sector was supportive of the budgetary desire to enhance job creation.

The Assistant Director said the resolve by the CBN to ensure the stability of the exchange rate and the sanctity of the budget projections of N150/$1 is consistent with government desire to realise the budget objectives. "The major objectives of macroeconomic policy by the monetary and fiscal authorities in Nigeria would continue to be the achievement of non-inflationary and stable growth. There would be a continued need for greater institutional cooperation/collaboration even as sustainable fiscal policy and pragmatic monetary management are essential for Nigeria’s economic growth and development," he said.

Idowu explained that earmarking N100 billion for Presidential Intervention Fund to execute public works project and resuscitate the operation of the erstwhile National Directorate of Employment (NDE) meant to bolster job creation was in line with the subsisting intervention by the CBN to boost employment.

Given that the provision of infrastructure by banks constitute a large portion of the operating cost, efforts by the CBN and the fiscal authorities to continue to tackle the problem of infrastructure would assist in reducing the cost of funds and ensure affordable credit to the real sector of the economy.

The CBN monetary policy measures outlined in the Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for fiscal years 2010/2011 would continue to address the issue of stability of the exchange rate and ensure the sanctity of the budget projections of N150 to a dollar exchange rate to realise government objectives.

Mr Garba Garba of the Department of Economics, Ahmadu Bello University, Zaria, said building the institutional framework for macroeconomic management is critical to improving budget design, budget implementation, budget outcomes, monitoring and evaluation.

He said such activities fall within the responsibility of government, citizens who should put up key to improve budget institutional framework.

Financial analysts insist that over the last decade, Nigeria’s macroeconomic landscape has continued to witness increasing efforts at ensuring institutional co-ordination and policy consistencies between the apex bank and the fiscal authorities embarking on reforms.

The reforms, which among others established a medium-term framework, brought fiscal policy formulation into alignment with the medium term monetary policy framework of the CBN.

The 2011 Federal Government Budget was formulated to attract foreign investment and facilitate private sector growth as catalysts for wealth creation, employment generation and rapid economic growth. Consistent with the fiscal policy thrust, the CBN initiated accommodative monetary management that would spur credit growth to the private sector, ensure the turn-around of manufacturing activities and resuscitate infrastructure.