Nigeria: Fighting Recession

In 2016, when the country, faced with double digit inflation and negative growth for two consecutive quarters in addition to a low crude oil price, all of which placed pressure on the value of the country’s currency and exposed the country to recession, the Central Bank of Nigeria (CBN) designed a number of development policies that were effective in the short to medium term.

Such programmes like the Anchor Borrowers’ Programme (ABP), Commodity Development Initiative (CDI), the Youth Entrepreneurship Development Programme, Agribusiness/ Small and Medium Equity Investment Scheme (AGSMEIS), the National Collateral Registry (NCR) and the Creative Industry Financing Initiative (CIFI) came in handy as measures to reverse the downward trend in the economy making it possible for the country to exit recession in good time.

The effort to lift the economy out of negative growth at that time also necessitated the unveiling of the framework for the implementation of Family Homes Fund (FMF) financing initiative; National Gas Expansion Programme; and Solar Connection Facility. The CBN Governor, Mr Godwin Emefiele, similarly met severally with stakeholders in the value chains of not less than ten crops to discuss effective linkages and consider measures to increase domestic production of the relevant crops, in the attempt to attain self-sufficiency in the production of those crops.

Presently and with inflation now estimated at above 15 per cent, these same challenges of 2016 have once again befallen the country, a situation made worse by the COVID-19 pandemic. Before now, Emefiele, had warned of the possibility of the economy sliding into recession again unless appropriate complementary measures were taken by the monetary and fiscal authorities.

While he alerted the nation about the possibility of a decline in economic activity, he continued with activities proactively intended to manage the crisis when it arrives. In our considered opinion, COVID-19 and its devastating effect in the socio-economic life of the world contributed to this latest development. As a result, world economy as a whole went into a tailspin.

It is pertinent to recall that the policies of the CBN prior to the outbreak of the pandemic proved proactively helpful in cushioning its effect. The policies were particularly impactful in the agriculture value chain that managed the food security of the country.

However, in the interim, and as this new phase of recession becomes imminent, the medium-term outlook for both the domestic and global economies have continued to show improved prospects of recovery, supported by the recent moderate uptick in crude prices and increased optimism over the procurement and distribution of COVID-19 vaccines.

In sharing this optimism, Emefiele projected that the pandemic-induced recession will be over in no time. This positive projection is buoyed by available data and forecasts for key macroeconomic variables for the Nigerian economy which suggest further improvement in output growth in the first quarter of 2021.

In the opinion of the CBN, this would be supported by the coordinated and sustained interventions of the monetary and fiscal authorities, including the broad-based stimulus and liquidity injections. Inflationary pressure, it surmised, is also expected to commence moderation as the economy’s negative output gap closes.

Still, the Monetary Policy Committee (MPC) of the apex bank, at its recent meeting, suggested ways by which government can improve revenue sources and investment in capital as part of the avenue of expanding the economy and enhancing the production processes. It called on the government to take advantage of the take-off of the African Continental Free Trade Area (AfCFTA), which has the potential of boosting domestic production and generating sizeable revenues for government as well as improving domestic productivity and competitiveness.

While commending the apex bank’s effort at improving liquidity in the foreign exchange market, the MPC noted the need to continue to explore avenues to improve inflow from sources such as the International Money Transfer Operators (IMTO), diaspora remittances and non-oil export promotion, given the current trajectory of crude oil prices. These sources, in the view of the committee, would boost foreign exchange supply and ease the current exchange rate pressure and invariably aid an early recovery of the economy.

This newspaper shares the view of the committee that the broad-based global stimulus packages, including expanded credit lines, asset purchase programme, corporate bond purchase, additional funding facilities for financial system, commercial paper purchases, special central bank lending, increase in the Ways and Means limits introduced by the central banks of different countries to support economic recovery in their various economies, will prevent further distortions to the economy caused by the devastating impact of the pandemic.

From all indications, it is obvious the CBN will pursue its current stance of systematic synchronization of monetary and fiscal policy accommodation through its developmental finance initiatives aimed at mitigating the impact of the COVID-19 pandemic on Nigerians. What is derivable from all these policy options, in the view of this newspaper, is that all eyes are on the CBN to, once again, pull the economy out of this recession.

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