The Central Bank of Nigeria, CBN has warned that Nigeria's economy is likely to slip back into recession for a couple of reasons.
According to the Monetary Policy Committee of Nigeria's apex bank, weak economic fundamentals currently being shown by the economy could drag the country back into economic recession which the presidency had earlier declared over a couple of months ago.
Speaking to newsmen after the two-day meeting of the MPC members held at the headquarters of the apex bank, the CBN Governor, Mr Godwin Emefiele, said the economy had started showing signs of weakness.
According to him, there was a fresh threat of recession as the economy recorded a growth rate of 1.95 per cent and 1.5 per cent during the first and the second quarters of this year, respectively.
Emefiele noted that the slowdown emanated from the oil sector, with strong linkages to employment and growth.
He said the late implementation of the 2018 budget, weakening demand and consumer spending, rising contractor debts, and low minimum wage were some of the risks to output growth.
Others, according to him, are the impact of flooding on agricultural output, continued security challenges in the North-East and North-Central zones, and growing level of sovereign debts.
Emefiele stated, “The MPC observed that despite the underperformance of key monetary aggregates, headline inflation inched up to 11.23 per cent in August 2018 from 11.14 per cent in July 2018.
“The near time upside risks to inflation remain the dissipation of the base effect expected from 2019 election-related spending, continued herdsmen attacks on farmers and episode of flooding, which destroyed farmlands and affected food supply ultimately.
“In this regard, the committee urges the fiscal authorities to sustain implementation of the 2018 budget to relieve the supply side growth constraints so that they can address the flooding, which has become perennial on a permanent basis.
“Relative stability has returned to the foreign exchange market buoyed by the robust external reserves, with inflation trending downward for the 18th consecutive month.
“The gains so far achieved appeared to be under threat following the new data, which provides evidence of weakening fundamentals. The committee identified rise in inflation and pressure on the external reserves created by the capital flows reversals as the current challenges to growth.
“It noted that the underlying pressures have started rebuilding and capital flows reversals have intensified as shown by the bearish trend in the equities’ market even though the exchange rate remains very stable.
“The committee was concerned that the exit from recession may be under threat as the economy slid to 1.95 per cent and 1.5 per cent during the first and the second quarters of 2018, respectively.
“The committee noted that the slowdown emanated from the oil sector with strong linkages to employment and growth.”
On what could be done to stimulate economic activities, the CBN boss said that though growth remained weak, the effective implementation of the 2018 Federal Government budget and policies that would encourage credit delivery to the real sector of the economy might boost aggregate demand, stimulate economic activity and reduce unemployment in the country.
The committee urged the government to take advantage of the current rising trend in oil prices to rebuild fiscal buffers, strengthen government finances in the medium term and reverse the current trend of decline in output growth.
The MPC, according to him, also called on the fiscal authority to intensify the implementation of the Economic Recovery and Growth Plan to stimulate economic activities, bridge the output gap and create employment.
The apex bank boss said the MPC expressed concern over the potential impact of liquidity injection from election-related spending and increase in federal allocations, which are rising in tandem with increase in oil receipts.
Emefiele added that the committee was concerned with the rising level of non-performing loans in the banking system, and urged the banks to closely monitor and address the situation.
He also expressed concern over the weak intermediation by Deposit Money Banks and its adverse impact on credit expansion as well as investment growth by the private sector.