The Central Bank of Nigeria on Tuesday warned that weak economic fundamentals, particularly low industrial output and rising unemployment rate, could reverse the growth trajectory of the nation’s economy and if not properly managed, plunged it into another recessionary era.
The apex bank governor, Godwin Emefiele, who gave the warning after the two-day meeting of the bank’s Monetary Policy Committee (MPC) in Abuja said that the committee observed that the nation’s economy had started exhibiting signs of weakness.
Specifically, he cited the sliding growth in the economy as reflected in the growth rate of 1.95 percent and 1.5 percent recorded in the first and the second quarters of this year as worrisome and necessitated the committee’s concern over a potential threat of another round of recession.
The CBN Governor noted that the slowdown emanated from the oil sector, with strong linkages to employment and growth.
In addition, Emefiele also reported that the committee identified the late implementation of the 2018 budget, weakening demand and consumer spending, rising contractor debts, and low minimum wage as some of the risks to the nation’s economic output and sustainable growth.
This is even as the committee also listed the impact of flooding on agricultural output, continued security challenges in the troubled North-East and North-Central zones, and growing level of sovereign debts as macroeconomic developments that should be managed by the government to stimulate growth in the economy.
Emefiele reported further: “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”, the CBN governor added.
On what could be done to stimulate economic activities, Emefiele hinted that the committee observed that though growth remained weak, the effective implementation of the 2018 budget and policy reforms that would encourage credit delivery to the real sector of the economy might boost aggregate demand, stimulate economic activity and reduce the nation’s unemployment rate.
He reported further that the committee would want 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.
This is even as the committee charged the fiscal authority also to intensify the implementation of the Economic Recovery and Growth Plan (ERGP) to stimulate economic activities, bridge the output gap and create employment.
It would be recalled that the Nigerian economy exited recession in 2017 after suffering contraction for five consecutive quarters.