Given that the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) accurately predicted the economy’s surprise exit from recession in the last quarter of last year, there is widespread belief that the apex bank is on the right path in continuing with its interventions in key sectors, writes TONY CHUKWUNYEM
With the International Monetary Fund (IMF) and the World Bank forecasting as far back as June last year that the coronavirus (COVID-19) crisis, with the lockdown and other major disruptions, would plunge the global economy into its worst downturn since the Great Depression of the 1930s, it was widely predicted in this part of the world at the time that Nigeria and other countries in sub-Saharan Africa would slip into recession.
Thus, when the National Bureau of Statistics (NBS), in November last year, released Q3’20 Gross Domestic Data (GDP) numbers, which confirmed that the economy had slid into a second recession in four years, having recorded negative growth of 6.10 per cent and 3.62 per cent in Q2 and Q3’20 respectively, the debate among industry watchers was about how long it would take the economy to recover.
The consensus among analysts then was that given the fact that Nigeria had been grappling with low growth, even before the COVID-19 induced recession, it would take the economy at least until the second quarter of this year to rebound.
However, members of the Central Bank of Nigeria (CBN)’s Monetary Policy Committee (MPC), who held their meeting a few days after the NBS released the Q3’20 data, expressed optimism that the economic slump would be transient.
Specifically, the communiqué issued at the end of the MPC meeting stated: “In the domestic economy, available data and forecasts for key macroeconomic variables also suggest optimism in output growth in the fourth quarter of 2020, due to the positive outlook for most economic activities.
Accordingly, the economy is expected to recover from recession by the end of 2020, while inflation is projected to moderate by the first quarter of 2021.” It further stated: “The Committee noted that the contraction had bottomed out, since it moderated significantly from -6.10 to -3.62 per cent in the third quarter of 2020. This was so because both the monetary and fiscal authorities had anticipated the impending recession and had put measures in place for its quick reversion.
“Some of these measures include the Economic Sustainability Programme by the Federal Government and other CBN facilities targeted at households, small and medium enterprises (SMEs), youth empowerment, and reduction of unemployment. It thus, urged the Federal Government to maintain its initiatives targeted at reducing unemployment, particularly amongst the youths, citing the recent EndSARS protests and ensuing agitation by hoodlums as potentially disruptive to output growth in Nigeria.
“To this end, the MPC reiterated its support for the various development finance initiatives of the CBN to stimulate production and reduce unemployment. MPC further encouraged the Bank to intensify its efforts by increasing funding to more beneficiaries so as to boost consumer spending and accelerate recovery from recession.”
Similarly, in his address at the Chartered Institute of Bankers of Nigeria’s (CIBN) 55th Annual Bank ers’ Dinner also held in November last year, CBN Governor, Mr. Godwin Emefiele, citing the various measures introduced by the monetary and fiscal authorities to tackle the Covid-19 crisis, said he was confident that the economy would recover quickly from the recession like it did in 2017.
He said: “Our first objective was to restore stability to the economy by providing assistance to households and businesses that had been severely affected by the pandemic. In addition, we sought to stimulate economy activity through targeted interventions in critical sectors such as agriculture, manufacturing, electricity and construction. Cumulatively our intervention efforts represent about 3.5 per cent of Nigeria’s GDP.
“Some of these measures we took include: Cumulative reduction of the monetary policy rate from 13.5 to 11.5 per cent between May and September 2020 in order to spur lending to the economy; a 1-year extension of the moratorium on principal repayments for CBN intervention facilities; regulatory forbearance was granted to banks to restructure loans given to sectors that were severely affected by the pandemic and reduction of the interest rate on CBN intervention loans from nine to five per cent.”
Emefiele also stated that the apex bank strengthened its Loan to Deposit Ratio (LDR) policy, which, according to him, has resulted in a significant rise in loans provided by financial institutions to banking customers, with total gross credit rising by over 21 per cent over the past year, from N15.5 trillion to N19.54 trillion.
On the N150 billion Targeted Credit Facility (TCF) for affected households and Small and Medium Enterprises that is disbursed through the NIRSAL Microfinance Bank, the CBN Governor said: “Already, N149.21 billion has been disbursed to 316,869 beneficiaries.
Given the resounding success of this program and its positive impact on output growth, we have decided to double this fund to about N300 billion, so as to accommodate many more beneficiaries and boost consumer expenditure which should positively impact output growth.”
He further disclosed that the regulator disbursed N92.90 billion to 24,702 beneficiaries under the AgriBusiness/Small and Medium Enterprise Investment Scheme (AGSMEIS) and N164.91 billion to 954,279 beneficiaries under the Anchor Borrowers Programme (ABP).
Other steps taken by the apex bank, listed by Emefiele, include “mobilization of key stakeholders in the Nigerian economy through the Coalition Against COVID-19 (CACOVID), which led to the provision of over N28 billion in relief to affected households, and the set-up of 39 isolation centers across the country.
“Creation of a N100 billion intervention fund in loans to pharmaceutical companies and healthcare practitioners intending to expand and strengthen the capacity of our healthcare institutions; so far 60 health care related projects are being funded to the tune of over N60 billion as a result of the intervention and the creation of a research fund, which is designed to support the development of vaccines in Nigeria.”
He also mentioned the establishment of a N1 trillion facility in loans to boost local manufacturing and production across critical sectors, stating that “53 major manufacturing projects, 21 agriculture-related projects and 13 service projects are being funded to the tune of over N360 billion from this facility.”
The CBN governor predicted that “with sustained implementation of our intervention measures, we do expect that the Nigerian economy could emerge from the recession by the first quarter of 2021. We also expect that growth in 2021 would attain 2.0 per cent.”
However, Q4’20 GDP numbers released by the NBS last Thursday showed that the economy exited recession in the fourth quarter, as it achieved economic growth of 0.11 per cent in the last three months of 2020. The NBS report also indicated that the economy contracted 1.92 per cent in 2020, compared with the World Bank and IMF’s forecasts of four per cent and 3.2 per cent respectively.
Significantly, commenting on the NBS data, analysts at Financial Derivatives Company (FDC) Limited, stated: “The just released GDP growth numbers affirm the fact that the Nigerian economy is on its recovery path.
Contrary to market expectations, the Nigerian economy recorded positive growth of 0.11 per cent (year-on-year) in Q4’20 after two consecutive quarters of negative growth. This puts full year growth for 2020 at -1.92 per cent and implies that the recession is over.
The surprise recovery was driven by the resumption in most business activities. “The Nigerian economy is off to a strong start post-COVID with the positive Q4’20 growth numbers. It is safe to say that the combination of the fiscal stimulus packages, accommodative monetary policy and other relief plans, have achieved the desired objective.”
The FDC analysts, however, predicted that although the CBN’s interventions, as well as fiscal stimulus packages, will likely facilitate the recovery process.
“The recovery process in 2021 is expected to be gradual and tough, especially for sectors such as trade and manufacturing that are income elastic and forex dependent,” FDC said.
They pointed out that while CBN may ease its forex rationing and boost dollar supply in the forex market, which should provide some respite, for the trade and manufacturing sectors, the agriculture sector, which has been able to withstand the health pandemic, is facing a new and more severe crisis- growing insecurity. “With the spread of attacks and tribal clashes to the South West, if left unchecked, agricultural output will reduce sharply.
More so as it coincides with the planting season (end of Q1 into Q2), which is when output is typically lower. Civil works and construction activities will ride on increased government focus on bridging the infrastructure gap, while the likes of ICT and financial services will benefit from the increased use of data and electronic platforms to transact economic and business activities.
“In summary, the GDP growth rate will rise this year, but at a slow pace due to lingering structural challenges. The AfCFTA, border reopening, higher oil prices and availability of the vaccines will support the growth trend.
Based on the above, we expect that the policy thrust of government will become more focused on ensuring price and exchange rate stability as output levels increase. This means that we are likely to see interest rates increase further in subsequent quarters,” the analysts said.
Thus, while the consensus in financial circles is that CBN’s interventions, coupled with fiscal stimulus packages, helped the economy to achieve a quick exit from recession and will enhance the recovery process, there are challenges, such as insecurity, that pose a significant risk to growth