Presidency Downplays GDP Contraction, Says Result Beats Forecasts
Attributes outcome to measures to arrest economic decline Rewane seeks periodic adjustment of economy
The presidency has said that the 6.1per cent decline in the nation's Gross Domestic
Product (GDP) shows that the economy isn't in such a bad state as earlier projected by both domestic and international experts.
According to it, 6.1 per cent economic contraction reported by the Nigerian Bureau of Statistics (NBS) in the second quarter of 2020 beat the projected forecasts of 7.24 per cent decline by the experts. It also beats most domestic and international forecasts for other countries such as the United States, the United Kingdom, Germany, France and South Africa.
Presidential spokesman, Mr. Femi Adesina, said in a statement yesterday that the overall decline of 6.1 per cent (for Q2 2020) and 2.18 per cent (for H1 2020) was better than the projected forecast of 7.24 per cent as estimated by the NBS.
He, however, attributed the improvement to the various proactive measures put in place by the federal government to strengthen the economy and arrest the downward trajectory.
But Managing Director/ Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, has said the federal government should explore periodic adjustment of the economy to avoid its contraction as manifested in the 6.1 per cent decline in the second quarter of the year.
Reacting to the NBS report released on Monday, Adesina said the 6.1 per cent GDP growth decline in the second quarter of the year ended "the three-year trend of low but consistently improving positive real growth rates recorded since the 2016/2017 recession."
He added that it was a consequence of the real GDP decline of 2.18 per cent year-on-year when compared with 2.11 per cent recorded in the first half of 2019.
According to him, the GDP growth decline in Nigeria during the quarter was far better than the GDP output recorded in many other countries during the same quarter.
He stated that the contraction did not only beat most domestic and international forecasts, but it also seemed to be "muted when compared to the outcomes in several countries."
He listed such countries with poorer economic performance during the quarter as more economically advanced economies such as the US which he said recorded 33 per cent decline; the United Kingdom (20 per cent), France (14 per cent) and Germany (10 per cent).
Other poorer contractions, he said, occurred in: Italy (12.4 per cent), Canada (12 per cent), Israel (29 per cent), Japan (eight per cent), South Africa (projection 20 per cent to 50 per cent), with the notable exception of only China with a growth rate of three per cent.
He said: "The National Bureau of Statistics (NBS) published on Monday, August 24, 2020, the 2nd Quarter (Q2) 2020 Gross Domestic Product (GDP) estimates, which "measures economic growth.
Nigeria’s (GDP) declined by 6.10 per cent (year-onyear) in real terms in the second quarter of 2020, ending the three-year trend of low but consistently improving positive real growth rates recorded since the 2016/17 recession. Consequently, for the first half of 2020, real GDP declined by 2.18 per cent year-on-year, compared with 2.11 per cent recorded in the first half of 2019.
"The overall decline of 6.1 per cent (for Q2 2020) and 2.18 per cent (for H1 2020) was better than the projected forecast of 7.24 per cent as estimated by the National Bureau of Statistics. The figure was also relatively far better than many other countries recorded during the same quarter.
"Furthermore, despite the observed contraction in economic activity during the quarter, it outperformed projections by most domestic and international analysts. It also appears muted compared to the outcomes in several other countries, including large economies such as the US (33 per cent), UK (20 per cent), France (14 per cent), Germany (10 per cent), Italy (12.4 per cent), Canada (12 per cent), Israel (29 per cent), Japan (eight per cent), South Africa (projection 20 per cent to 50 per cent), with the notable exception of only China (three per cent)."
Adesina said the decline was arrested by various proactive measures, the federal government introduced to cushion the anticipated effects of COVID-19 pandemic, including the Economic Sustainability Programme (ESP) which helped to curtail the effect of the pandemic on the economy.
The statement explained that fiscal measures put in place were deliberately conceived to raise revenues to support humanitarian assistance aside other intervention funds pumped into the health sector.
He added that adjustments to the national budget and emergency financing from concessional lending windows of development finance institutions also helped in supporting governments’ capacity to live up to its responsibilities.
"The government’s anticipation of the impending economic slowdown and the various initiatives introduced as early responses to cushion the economic and social effects of the pandemic, through the Economic Sustainability Programme (ESP), contributed immensely to dampening the severity of the pandemic on growth.
"On the fiscal side, a robust financing mechanism was designed to raise revenue to support humanitarian assistance, in addition to special intervention funds for the health sector.
"Adjustments to the national budget as well as emergency financing from concessional lending windows of development finance institutions were critical in supporting governments’ capacity to meet its obligations," he stated.
He also listed other monetary measures such as loan moratorium, credit support to both households and industries, among others, as parts of the efforts to control the effects of COVID-19 outbreak on the economy.
Other measures highlighted by Adesina included the ease of lockdown on interstate movements as well as conscious management of the health impact of COVID-19 without overstretching the country's health infrastructure.
He said the decisions aided the confidence to reopen the country for international flights as well as commerce and international trade, adding that the trend also encouraged concerned authorities' resolve to reopen schools for the conduct of terminal examinations and imminent commencement of the next academic year.
"On the monetary side, moratorium on loans, credit support to households and industries, regulatory forbearance and targeted lending and guarantee programmes through NIRSAL were some of the measures implemented in response to the pandemic during the second quarter.
"It is equally worth noting that since the start of the third quarter, the phased approach to easing the restrictions being implemented centrally and across states have resulted in a gradual return of economic activity, including the possibility of international travel.
"More importantly, the anticipated health impacts of the pandemic have been managed without overwhelming the health infrastructure, which would have further compromised the ability to reopen the country to travel, commerce and international trade. Indeed, this has provided greater confidence and ability for authorities to initiate the conduct of nationwide terminal examinations and resumption of the next academic year," Adesina added.
Speaking on the forthcoming third and fourth quarter outputs, Adesina said: "It is anticipated that while the third and fourth quarters will reflect continued effects of the slowdown, the fiscal and monetary policy initiatives being deployed by the government in a phased process will be a robust response to the challenges posed by the COVID-19 pandemic."
Rewane Seeks Periodic Adjustment of Economy
Rewane has, however, urged the federal government to explore periodic adjustment of the economy to avoid GDP contraction as recorded in the second quarter of the year.
He said enforcing price control was not the solution if the government was serious about boosting the country’s GDP and making it economically stable.
Rewane who spoke yesterday on ARISE NEWS, the broadcast arm of THISDAY Newspapers, said in order to achieve a rise in the country’s GDP, the government needed to deploy new strategies such as “saving national income; taking loan; and efficient deployment of resources in such a way that government must ensure that companies are producing and employing people in order to address the consumption needs of Nigerians, in addition to completing national projects in record time.”
Rewane stated that when these strategies are achieved, it will boost productivity and investments.
Reacting to the announcement recently by the Central Bank of Nigeria (CBN) on foreign exchange abuse and over-invoicing through the manipulation of Form ‘M’, Rewane said: “When there is a market imperfection in the system, gaps will be created and there will be abuse. The truth is that controlling prices will achieve nothing just like we have seen in the past when the government introduced Money Exchange Anti-sabotage Decree, whereby having up to $10 in an individual’s account was a crime that attracted five years’ imprisonment. That policy achieved nothing until Nigeria liberalised the market and allowed the exchange rate to move with market-determined forces. That was when we achieved economic sanity.
“The CBN rules on foreign exchange will not address the situation because people will always find a way around it. We have the preshipment inspection rules that determine the origin and values, but the truth is that whether they buy directly from the exporter, the exporter can still inflate the price and pay in dollar while the dollar is resold in Nigeria at a higher rate to make more money.”
According to the economist, “we are aware of people who use their ATM cards to withdraw dollars in Lomé and come to Nigeria to sell the dollars because there is a huge disparity in the prices of the dollar in Lome and Nigeria, where the rate is higher in the parallel market. But for how long will CBN continue to trace these shadows with its monetary policies?
“What is appropriate for Nigeria is for CBN to periodically make adjustments on the economy, which will help close the gap between the two markets. So if the gap is closed then there will be no incentives for anybody or group of people to buy dollars from the bank and sell at the parallel market.
“Although I fully support what the CBN is trying to accomplish, as a core economist, I found it extremely difficult to believe that price control will address the challenge.”
Speaking on how periodic adjustment of the economy will work, Rewane said: “If CBN adjust the exchange rate to a particular level in order to close the market gap, and then disburse between $3 billion and $4 billion to manufacturers, it will amount to taking away about N2 trillion out of the economy and nobody will have the dollar to sell at the parallel market, from where they make a lot of money.”
He recalled that in 2008 when Prof. Charles Soludo was CBN governor, the dollar moved up from N118 to N155 and for up to five weeks, people were buying money in the parallel market to sell to CBN because the official rate was higher than that of the parallel market, and that singular policy adjustment, stabilised the Nigerian economy for a long period.
“So, periodic adjustment is necessary to boost GDP and grow the economy and not through price control because people will always find ways out of it,” Rewane said.