Sliding Back into Recession?
The warning delivered last week that Nigeria’s economy could slide back into recession sent shivers down the spines of most Nigerians. The doomsday forecast did not come from a foreign “think tank” or a busybody local NGO. Instead, it came from Central Bank of Nigeria [CBN] governor Godwin Emefiele. Speaking on Tuesday soon after CBN’s 263rd Monetary Policy Committee [MPC] meeting in Abuja, he said Nigerians should not be carried away with unripe celebrations over the economy exiting recession because recent industry figures show it is still under threat of sliding back into recession.
According to CBN, the economy slowed to 1.95% and 1.50% growth in the first and the second quarters of 2018. Even though the government claimed last year that we were officially out of recession, the ordinary Nigerian hardly felt the impact. This was because “emerging from recession” was only technical, with growth figures just above zero and CBN now warns that they could drop below zero all over again. The 10-member MPC then voted to retain the monetary policy rate [MPR] at 14%, the Asymmetric Corridor at +200 and -500 basis points around the PMR and CRR at 22.5 percent.
Factors identified by CBN as contributing to the grim forecast are rising inflation and pressure on the external reserves created by capital flow reversal. Inflationary pressure, Emefiele said, has started rebuilding and capital flow reversal has intensified as shown by the bearish trend in the equities market, “even though the exchange rate remains very stable.” MPC, he said, “expressed concern over the potential impact of liquidity injection from election related spending and increase in FAAC [Federation Account Allocation Committee] distribution which was rising in tandem with increase in oil receipt.” It is a bit difficult for laymen to see why increased spending in the election season, as well as higher FAAC allocations to states in recent times due to rise in international oil prices, should lead to a slide back into recession when popular expectation is that it should do the reverse. Afterall, the collapse of oil prices in 2015 and the resultant dip in FAAC allocations was the major factor in our slide into recession the last time around.
More understandably, MPC urged the government to fast track implementation of the 2018 budget in order “to help jump start the process of sustainable economic recovery.” We all agree that something must be done about this country’s chaotic budget process at the federal level, beginning from next year. A situation in which the budget does not become law until two thirds of the year is gone does not augur well for any kind of economic growth. CBN also urged quick passage of the Petroleum Industry Bill [PIB] “in order to increase contribution to the overall GDP”, something we wholly agree with.
Among other things, CBN’s MPC also “urged 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.” It also called “on the fiscal authority to intensify the implementation of the Economic Recovery and Growth Plan (ERGP) to stimulate economic activities, bridge the output gap and create employment.” We have long argued that for the ordinary person, creation of employment opportunities is the best evidence of economic recovery. Without it, official claims that “we have exited the recession” ring hollow.
We urge the Federal Government, together with CBN, National Assembly and financial institutions to take all necessary steps to prevent a slide back into recession. This problem is man-made and human agencies must avert it.
This problem is man-made and human agencies must avert it