24 May 2016, Sweetcrude, Lagos — The prolonged impasse between the executive and legislative branches of government which caused a delay in the passage of the 2016 budget has been fingered as the reason why the Nigerian economy recorded the worst Gross Domestic Product, GDP, growth rate in recent years.
The prolonged delay in the passage and signing of the 2016 budget into law is said to have denied the economy the timely intervention of complementary fiscal policy to stimulate economic activity in the face of dwindling foreign capital flow.
This position is contained in a Central Bank of Nigeria, CBN Communique No.107 of the Monetary Policy Committee Meeting released today.
The latest data from the Nigeria Bureau of Statistic showed that GDP contracted at constant basic prices by -0.4 percent year-in-year-out in the first quarter of 2016, compared with modest growth of 2.1 percent in 2015 Q4.
The communiqué states that the delayed passage of the 2016 budget constrained the much desired fiscal stimulus, thus edging the economy towards contractionary output.
“As a stop-gap measure, the CBN continued to deploy all the instruments within its control in the hope of keeping the economy afloat.
“The actions, however, proved insufficient to fully avert the impending economic contraction,” the communiqué states.
It added that some of the conditions that led to the contraction in Q1, 2016 still remains largely unresolved noting that the weak outlook for growth which signaled in July 2015 could extend to Q2, 2016.
“To this effect, today’s policy actions have to be predicated on a less optimistic outlook for the economy in the short term, given that even after the delayed budgetary passage in May 2016, the initial monetary injection approved by the Federal Government may not impact the economy soon, as the processes involved in MDAs finalising procurement contracts before the disbursement of funds may further delay the much needed financial stimulus to restart growth.”
Other reasons according to the CBN communiqué is power shortages, increase electricity tariff, scarcity of foreign exchange and depressed consumer demand.
As a result economic agents could not undertake new investments or procure needed raw materials.
MPC in the communiqué noted that many of the prevailing conditions in the economy during the review period were outside the direct control of monetary policy but hopes that the implementation of the 201f budget, supported by relevant sectoral policies and easing supply shocks in energy and critical inputs, would provide the needed boost to the economy.
Aside from the worst GPD in recent years, MPC in the communiqué noted that there was a further increase in year-on-yeaar headline inflation to 12.77 percent and 13.72 percent in March and April 2016, respectively, from 11.38 percent in February 2016.
It added that the increase in headline inflation in April reflected increases both in food and core components of inflation.
“Core inflation rose sharply for the third time in a row to 13.35 percent in April from 12.17 percent in March, 11.00 percent in February and 8.80 percent in January having stayed at 8.70 percent for three consecutive months through December, 2015.
“The rising inflationary pressure continued to be traced to legacy factor including energy crisis reflected in incessant scarcity of refined petroleum products, exchange rate pass through from imported goods, high cost of electricity, high transport cost, reduction in food output, high cost of inputs and low industrial output,” MPC noted in the communiqué.