Nigerian Economy May Go Into Recession In 2016 – Emefiele

The Central Bank of Nigeria (CBN) has said that it is unaware of any memorandum exempting some institutions from the Treasury Single Account (TSA). The bank, therefore, called on all affected organizations to comply with the directive of moving their money to the central bank immediately. It also raised alarm that the country may go into recession in 2016.

CBN Governor Godwin Emefiele made this known on Tuesday at a briefing on the outcome of the September Monetary Policy Committee (MPC) meeting. The committee reduced the Cash Reserve Requirement (CRR) reduced from 31 percent to 25 percent but the Monetary Policy Rate (MPR) was retained at 13 percent and Liquidity ratio also retained at 30 percent.

“In consideration of the underlying fundamentals of the economy, particularly the declining output growth, rising unemployment, evolving international economic environment as well as the need to properly position the economy on a sustainable growth path, the MPC decided by a vote of 7 to reduce the Cash Reserve Requirement (CRR) from 31 per cent to 25 per cent while 3 voted to hold. By a unanimous vote, the MPC voted to retain the MPR at 13 per cent.”

According to Emefiele, the average naira exchange rate remained relatively stable at the inter-bank segment which opened at N196.95/US$ and closed at N197.00, at a daily average of N196.98/US$ between June 29 and September 18, 2015 representing a depreciation of N0.5K for the period, but significantly volatile in the Bureau De Change  segment  which opened at N224.50/US$ and closed at N211.50, adding however that the Committee reiterated its unwavering commitment to naira exchange rate stability despite the pressures.

He noted that the relative stability in the inter-bank market and improvement in the BDC segment were due to the various administrative and policy measures.

“The Committee noted that growth had come under severe strains arising from declining private and public expenditures. In particular, it noted the impact of non-payment of salaries at the state and local government levels as a key dampening factor on consumer demand. Year-on-year headline inflation continued to trend upwards, although the month-on-month measure moderated. Demand pressure in the foreign exchange market remained significant as oil prices continued to decline.

“Global inflation is expected to remain tepid as the recent temporary rebound in oil prices and stronger consumer sentiments have mildly raised consumer prices in the advanced economies. Consumer price developments were mixed in emerging and developing economies. Commodity importing economies have continued to benefit from low global oil and other commodity prices, while others, especially exporters of primary commodities, are contending with increased pressure on their currencies and fiscal position; and in some cases, significant inflation pass-through to domestic prices.”

Emefiele reterated the committee’s to price stability. He noted that the rising inflationary trend was a concern given the already tight monetary policy stance of the Bank, noting that the non-oil sector remained the main driver of growth in the second quarter of 2015, at 3.46 percent.

“Real GDP growth is projected by the National Bureau of Statistics (NBS) to stabilize at 2.63 per cent in 2015, compared with the 6.22per cent recorded in 2014.  The key drivers were services, trade and agriculture, contributing 1.80, 0.95 and 0.82 percentage points, respectively. On the other hand, Oil and Natural Gas sector declined by 0.73 percentage point an improvement of 1.13 percentage points relative to the first quarter of 2015.

“The overall outlook for economic activity is expected to improve on account of sustained improvement in the supply of power and refined petroleum products and progress with counter-insurgency in the North East axis. The Committee reiterated its commitment to efforts in support of the various ongoing Federal Government initiatives to stimulate output growth.

“The MPC also observed that despite the TSA, banking system liquidity ratio remained moderate. Consequently, the Committee advised on the urgent imperative of banks to aggressively support the efforts of government at job creation by channeling available liquidity into target growth enhancing sectors of the economy such as agriculture and manufacturing. This is with a view to promoting employment creation through conscious efforts aimed at directing lending to the growth enhancing sectors of the economy.”

The CBN Governor further said that the committee having seen two consecutive quarters of slow growth recognized that the economy could slip into recession in 2016 if proactive steps were not taken to revive growth in key sectors of the economy.