Experts advise Nigerian government to heed the Central Bank of Nigeria’s warning by implementing the current budget to the letter to avoid slipping back int0 recession

By Emeka Ejere

Less than one year after the Nigeria economy exited the first recession in nearly three decades, another warning of a possible slip came late last month from Godwin Emefiele, the governor of the Central Bank of Nigeria. The revelation must have shocked a lot of people, who attended the Monetary Policy Committee, MPC, meeting in Abuja. Emfiele attributed the development to the slow growth in the Gross Domestic Product, GDP, and warned that unless the implementation of 2018 budget is fast-tracked, that another recession is imminent.

An economy is said to be in recession after contracting for two consecutive quarters. The Nigeria economy slipped into recession in 2016. The Nigerian economy declined to 1.50 percent in the second quarter from 1.95 percent in the first quarter of the year. Further decline is expected unless managers of the economy adhered to the apex bank’s suggestions.

A recovery occurs when an economy strengthens after a period of recession and in such a situation, various indicators will turn higher including the GDP. Businesses will see an upsurge in positive activities and will start hiring.

Expectedly, a recovery implies that confidence will start increasing and demand for goods and services will rise.

However, more often than not, in most economies, recovery is usually fragile, particularly at its early stages such that should the process be derailed for any reason, whether political or economic, the unravelling negative effects would be disastrous.

For Nigeria not to suffer this fate, therefore, the apex bank feels all hands must be on the plough and both monetary and fiscal policies must align.

But will the federal government listen to the CBN governor on the state of the economy, and possibility of it returning to recession, especially on the implementation of the 2018 appropriation?

Emefiele warned that the euphoria that greeted the economy’s’ exit from recession is under threat, expressing concerns that the modest stability so far achieved in key indicators, including inflation, exchange rate and reserves since the last of its previous MPC meetings in July, also appeared to be under threat of reversal, given the new data, which provided evidence of weakening macro-economic fundamentals.

Emefiele said the implementation of the budget, the improvement in the security situation as well as sustained stability in the foreign exchange market will stabilise prices and strengthen economic growth.

He said the committee believed, however, that accretion to the external reserves should strengthen the last quarter of 2018 with crude oil prices remaining above the $51 per barrel budget benchmark and oil production increasing to 2.23 million barrels per day. The apex bank urged the government to take advantage of the rebound in oil prices to strengthen the fiscal buffers.

Emefiele said the committee identified rising inflation and pressure on the external reserves created by the capital flow reversal as the current challenges. He noted that the inflationary measure had started rebuilding, and capital flow reversal had intensified as shown by the bearish trend in the equities market, even though the exchange rate remains very stable.

The MPC, he said, expressed concerns over the potential impact of liquidity injection from the election related spending and increase in Federal Accounts Allocation Committee, FAAC, distribution which has risen in tandem with oil receipt increase.

“The MPC however, called on the government to fast-track implementation of the 2018 budget to help jump start the process of sustainable economy recovery and to facilitate passage of the Petroleum Industry Bill in order to increase contribution to the overall GDP”, Emefiele said.

Speaking on the situation, Uche Uwaleke, head of the Department of Banking and Finance, Nasarawa State University, said the federal government could only ignore at its peril the CBN’s warning that Nigeria risks drifting back into recession if economic downturn is not reversed quickly.

Uwaleke, a professor of the Capital Market said: “We have been through this road before. The events leading to the recent economic recession about which the CBN also issued warnings should serve as a lesson for the government.

“Only some months ago, soon after the recession, by mid-2017, the economy appeared set to embark on a journey of sustained positive economic growth, especially on the heels of oil price recovery. GDP growth rate headed north. External reserves grew and exchange rate stabilised. Inflation rate maintained a downward trend amid a bullish stock market. As a matter of fact, the Nigerian stock market was rated among the top three in 2017.”

However, he said: “Today, the table is turning for the worse, GDP growth plunged from 2.11 percent in Q4 2017 to 1.95 percent in Q1 2018 and further down to 1.5 percent in Q2 2018. Worse still, the agric sector which recorded relatively high growth rates in previous years, including the period of recession, was only able to grow by 1.19 percent in Q2 2018.”

On his part, Okechukwu Unegbu, a former president, the Chartered Institute of Bankers of Nigeria, CIBN, said as far as he was concerned, the economy never fully exited recession. He said what is needed currently is for the country to create more jobs, support the growth of Small and Medium Enterprises, and keep inflation under control.

“Economic growth is still low, and inflation rising. But diversifying the economy could help government achieve the desired growth,” he advised.

He said that although there is an improvement in forex supply, there is more to be done. “There is still a lot of work to be done, including the states raising their revenue base,” Unegbu said.

That notwithstanding, Richard Obire, a former executive director, Keystone Bank, said the psychology underpinning economics is that if people had a positive outlook about the economy, they are more likely to invest in such an economy.

He, however, said the growth recorded in the economy was slim and that more must be done to sustain it. The former bank executive said: “Being out of recession gives the people positive boost that there is hope for the future and that hope will bring about more capital inflows into the economy.”

Hence, Obire said that the government should guard the economy from slipping into recession, adding: “Being out of recession, will lead to more investments, which in turn will trigger a rise in production and subsequently, job creation. The rise in jobs, he said, will lead to more income and subsequently, drive consumption and that consumption leads to better production because economic activities go in cycles.”

According to him the effects of the loss of jobs that occurred during the five quarters of the past recession are still there, so, is the high inflation rate. He, therefore, said that now is the time for the people and economic managers to work hard to ensure the economic indicators get better.

Obire said: “We’re out of recession because we registered two-quarters of positive growth. But that does not mean we are out of the woods yet because we could slip back into recession if the growth indicators are not sustained.”

According to him, the improved access to forex by manufacturers has been a boost to the economic recovery, warning that: “We can still slip back very easily. We need to liberalise policies. Let’s avoid political statements that would destabilise the economy, especially as the 2019 election approaches.”

In his own submission, Micheal Osita, a financial analyst, said improved access to foreign exchange, rising crude oil production and prices and upbeat in the manufacturing sector are signs that could indicate that the economy is still on the right track. He, therefore, urged the government to take steps that will create more jobs and boost money flow to the grassroots.

Incidentally about three weeks before the CBN caution, Vice-President Yemi Osinbajo had announced initiatives to bolster spending in all tiers of the Nigerian economy as part of measures to boost growth and check the economy from sliding into another round of recession.

The initiatives include the setting up of a N700 billion minimum revenue distributable target monthly by the three tiers of governments at the monthly Federation Accounts Allocation Committee, FAAC, meetings as well as the adoption of new and viable sources of income generation to enhance receipts and spending at all tiers of government.

At the moment, distributable revenue monthly at the FAAC oscillates on the average between N400 billion and N500 billion covering allocations to the three tiers as well as statutory transfers to entities.