“You cannot have in the long term a capital market or even a banking system that grows and thrives on a sustainable basis until you build the real economy on which they thrive,” he said at a conference today in the southeastern city of Warri. “Otherwise, all the money that you raise in the system remains in the financial system and you just create bubbles.”
Finance Minister Ngozi Okonjo-Iweala reversed the government’s expansionary stance after she took office in August last year. The state must continue to cut recurrent spending, which includes wages, and invest more to fix power supplies, build roads and other infrastructure to allow the private industry to grow, Sanusi said.
President Goodluck Jonathan pledged on Oct. 10 to reduce recurrent spending to 69 percent of the total budget of 4.92 trillion naira ($31 billion) in 2013, from 72 percent this year.
“Any society where the government spends 70 percent of its money on its employees so that they can use the 30 percent for the rest of the country, has a problem,” Sanusi said. “It’s unsustainable.”
While agriculture is the biggest contributor to the gross domestic product, only three agricultural companies are listed on the Nigerian Stock Exchange, Sanusi said.
“The reason they’re not there is because the policies, until recently, haven’t been policies that aim at building agriculture,” he said.
The Monetary Policy Committee, led by Sanusi, has left its benchmark interest rate unchanged at a record 12 percent this year to help support the naira and curb inflation. Consumer prices rose 11.7 percent in October, staying above the central bank’s goal of less than 10 percent.
The bank boosted borrowing costs to bolster the naira and “anchor” price expectations, Sanusi said. Lower interest rates won’t necessarily spur investment by businesses, he said.
“We’re moving in the right direction,” he said. “The issue is: do you want to reverse policy at the first sign of success? Or do you want to wait and have sustainability?”
The bank won’t abandon its mandate of price stability in the pursuit of faster economic growth, Sanusi said.
“The central bank is responsible for stability,” he said. “If we abandon that function because we’re pursuing somebody else’s job, we will lose it.”
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