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CBN: FG’s deficits, others may undermine Nigeria’s Covid-19 response

Fiscal and monetary policy measures introduced by the country’s authorities to tackle the impact of the coronavirus (COVID-19) pandemic, may be weakened by the Federal Government’s deficits, underutilization in the labour market and inflationary pressures, the Central Bank of Nigeria (CBN) has said.

 

The apex bank stated this in, “Monetary, credit, foreign trade and exchange policy guidelines for fiscal years 2020/2021,” posted on its website at the weekend.

 

According to the CBN, while the measures, such as the N100bilion intervention in the heath sector, the N1trillion intervention in the manufacturing sector, the N50bilion Micro, Small and Medium Enterprises (MSMEs) facility, among others, are laudable, given that they are aimed at encouraging and expanding domestic production, improving productivity as well as generating employment opportunities, their expected impact could be affected by some headwinds.

 

Some of the likely challenges listed by the CBN include: “Increased Federal Government deficits, which may narrow fiscal space and crowd-out private investment; underutilization in the labour market due to weakened aggregate demand; and a build-up in inflationary pressures resulting from the increase in Value Added Tax (VAT) and border protection.”

 

In fact, the apex bank forecast that: “Headline inflation is expected to hover around 13.97 and 14.15 per cent at end-December 2020, owing to: supply shocks which may likely happen due to decline in economic activities, globally as a result of COVID-19 pandemic that started in China in Q4:2019; demand shocks emanating from domestic and international lockdowns; food supply shocks associated with non-tariff border protection; and effect of the implementation of the new budget and minimum wage.”

 

Also, citing the impact of the pandemic on the global economy as well as the sharp drop in oil prices, the CBN said its outlook for the Nigerian economy is, “mildly optimistic” with output growth expected: “to lie between -3.1, -1.0 and 0.24 per cent in 2020, predicated on low oil price between US$10 pb, US$20 pb and US$30 pb

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