Economy could slip into recession, CBN warns

23 September 2015, Abuja – The Monetary Policy Committee of the Central Bank of Nigeria on Tuesday warned that the country’s economy could slip into recession by next year if proactive steps were not taken by the Federal Government to revive key sectors.


Mr. Emefiele

It also reduced the Cash Reserves Requirements for banks from 31 per cent to 25 per cent; but retained the Monetary Policy Rate at 13 per cent.

The committee also retained the symmetric corridor of 200 basis points around the MPR; and left the liquidity ratio unchanged at 30 per cent.

Addressing journalists shortly after the two-day meeting of the committee held at the bank’s headquarters in Abuja, the CBN Governor, Mr. Godwin Emefiele, noted that the nation’s economy had remained fragile owing to various factors.

For instance, he said the country’s Gross Domestic Product recorded a slow growth in the second quarter of this year, making it the second consecutive less-than-expected performance for the GDP in the current fiscal year.

According to the National Bureau of Statistics, the real GDP grew by 2.35 per cent in the second quarter of this year, a significant decrease when compared with the 3.96 per cent and 6.54 per cent in the preceding quarter and corresponding period of 2014, respectively.

The real GDP growth is projected by the NBS to stabilise at 2.63 per cent in 2015, compared with the 6.22 per cent recorded in the previous year.

However, the MPC, according to the governor, noted that the impact of non-payment of workers’ salaries at the state and local government levels had led to the reduction in consumer demand.

Emefiele said while year-on-year headline inflation continued to trend upwards, demand pressure in the foreign exchange market remained significant as oil prices continued to decline.

As a result of these developments, he said there were indications that some of the banking sector performance indicators could be stressed if the conditions worsened further.

Specifically, he expressed worry that liquidity withdrawals following the implementation of the Treasury Single Account, elongation of the tenure of state governments’ loans as well as loans to the oil and gas sectors could aggravate liquidity conditions in banks and impair their financial intermediation role.

These, he noted, could affect economic growth unless some actions were immediately taken to ease the liquidity conditions in the markets.

Emefiele said, “The committee noted that the overall macroeconomic environment remained fragile. The committee noted that liquidity withdrawals following the implementation of the TSA, elongation of the tenure of state governments’ loans as well as loans to the oil and gas sectors could aggravate liquidity conditions in banks and impair their financial intermediation role, thus affecting economic growth, unless some actions were immediately taken to ease liquidity conditions in the markets.

“Having seen two consecutive quarters of slow growth, the committee recognised that the economy could slip into recession in 2016 if proactive steps were not taken to revive growth in key sectors of the economy.”

As a result of the challenges, Emefiele said the committee acknowledged that there was a need for synergy between monetary and fiscal policies as this would serve as the most potent option for sustainable growth.

“The committee further observed that the impact of the persistent decline in global crude oil prices on the fiscal position of the government continues to reflect in rising credit to the government,” he added.

On inflation, the governor said the committee was optimistic that as farm produce harvests progressed in the coming months, the pressure on food prices would gradually recede.

Growth-enhancing measures, he added, would, over the medium term, have some moderating effects on food prices.

However, the CBN governor said overall, the committee expressed optimism that business confidence would continue to improve as the government continued to unfold its economic plans.

In addition, Emefiele expressed optimism that some of the reassuring measures taken by the President Muhammadu Buhari administration, including efforts aimed at resolving fiscal challenges at the sub-national levels, the fight against corruption and improving the business environment, would unlock the inflow of foreign direct investment.

On the reserves position, he said the country’s gross official reserves dropped from $31.20bn at the end of July to $30.63bn on September 17, 2015.

When asked if any government agency had been excluded from the implementation of the TSA as reported by some media outfits, Emefiele said no such directive had been issued by the government.

He said, “Well, the truth is that as far as I am concerned, I haven’t seen any memo that exempts any MDA from the TSA. So, as a result, I will advise all those who think they have been exempted to please avoid creating confusion.

“Because I have not seen any memo and for that reason, no organisation is exempted. And I will appeal to those who are affected by the TSA to please continue to comply with the movement of accounts from other banks to the CBN.”

The governor, however, gave an assurance that the banking sector would survive despite the withdrawal of MDAs’ account from commercial banks.

He said, “There has been a lot of speculation in the market about the amount that needed to be moved from the money deposit banks to the CBN, thanks to the Treasury Single Account. The truth is that the amount that was moved was less than what has been speculated in the media.

“The data that the committee reviewed between yesterday and today showed that the liquidity ratio, indeed, decreased moderately. That is why the committee came up with the conclusion that the impact of the movement of funds from the CBN on liquidity is sort of moderate.”

When asked about the impact of the ban on dollar sale to importers of the 41 items earlier excluded from the foreign exchange market, the governor said the policy had begun to yield results.

“The impact is, as far as we are concerned, positive. We began to see people who before now, closed their factories as a result of the competitiveness of their products compared to the prices of imported items, now opening shop and employing more people, thereby boosting the business in the environment,” he added.

On the exclusion of Nigeria from the JPMorgan index, the governor said the central bank would continue to play its role of engendering growth and impacting the lives of the people.

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