Nigeria is sliding back into recession
International Monetary Fund’s (IMF) recent downgrade of its earlier growth projection for Nigeria in 2020 from 2.5 per cent to 2 per cent did not come as a shock, though some analysts have expressed surprise. The Fund on February 17, 2020 revised downwards Nigeria’s 2020 Gross Domestic Product (GDP) forecast to 2.0 per cent.
Afrinvest West Africa Ltd had earlier in the year predicted a devaluation of the Naira around mid-2020. It based its prediction on three consecutive quarters of weakness in current balance account, first since 2015, unless there is a drastic increase in international prices of crude oil. To them, it is a precursor to what should be expected around the exchange rate stability.
The IMF based its cut on the impact of lower international oil price on the Nigerian economy and expected inflation to continue to spike, so will the deteriorating terms of trade and capital outflows which will weaken the country’s external position.
In a statement signed by Amine Marti, Senior Resident Representative and Mission Chief for Nigeria, IMF said external vulnerabilities in the Nigerian economy was increasing, thus reflecting a higher current account deficit and declining reserves that remain highly vulnerable to capital flow reversals. Meanwhile, she said the exchange rate that had been stable mainly was helped by the sustained intervention of the Central Bank of Nigeria (CBN) at the forex market. The same institution had earlier advised the CBN to end forex intervention as a means of defending the Naira. What a paradox!
One cannot blame the Bretton Wood institution for its inconsistency and double speak. The Nigerian fiscal authorities should be blamed. It is apparent they are not in sync with global economic realities, and the enormity of the burden the CBN is taking of their weak shoulders. The increasing fiscal deficits are not in tandem with the efforts of the monetary authority. This was evident from the outcome of the last CBN Monetary Policy Committee meeting in January 2020 where the members identified infrastructure deficit and perennial clashes between farmers and herders as well as the unending Boko Haram insurgency as constraints to domestic production which in no small measure contributed to food inflation.
The increasing public debt without adequate fiscal buffer coupled with the unabating security threats and attacks on food producing areas are headwinds that have limited the potential of the Nigerian economy. This major challenge, if not urgently addressed, may plunge the nation into unimaginable economic and social crisis.
Thus, the fiscal authorities need to come up with actionable programmes and policies to complement the monetary authorities who had even gone beyond its mandate to intervene in critical sectors of the economy other than financial institutions. The federal government came up with economic diversification programme aimed at moving the economy away from oil to agriculture and non-agriculture products such as mining. However, those agencies of government saddled with constitutional mandate of driving this process are either clueless on what to do or what the economic diversification is about.
Critical ministries such as Trade and Investment, Labour and Productivity, Science and Technology, Education et al, and their parastatals are to be the drivers of diversification programme, crafting and executing programme that will lift the economy from the current morass. Regrettably, they seem not to exist. They look onto the CBN who filled the gap for the fiscal authority when shortly after the 2015 general elections and constitution of the federal executive cabinet. Since then the Central Bank of Nigeria has been seen and accused of delving into the things of the fiscal. It could only be imagined what would have become of the economy if the CBN had not embarked on interventions in some key sectors that have kept the economy afloat.
If there has been a corresponding energy and zeal from the fiscal authorities, the insecurity, the power challenge, would have been resolved to enable the economy to continue its growth trajectory.
Cheering though is the recent news break from the National Bureau of Statistics (NBS) that the Gross Domestic Product (GDP) in 2019 grew at 2.27 per cent against global rating agencies’ prediction of 2.1 per cent. This achievement no doubt was the product of aggressive and calculated efforts of the CBN, particularly with its Anchor Borrowers’ Programme, and its sustained intervention in ensuring availability of forex in defence of the Naira.
One emerging novel accord in the financial sector is the marriage of purpose between the Central Bank of Nigeria and the Bankers’ Committee, the umbrella body of chief executives of deposit money banks. This collaboration between the regulator and the regulated intervening and working together to revive some comatose sectors and making loans available through the loan-to-deposit (LDR) policy of the CBN is commendable. Not to mention their earlier decision to set aside 5 per cent of their annual profit to fund projects at single digit interest rate in the country.
CBN’s 10-commodity model of products it considered as a drain on reserves but can locally be produced, generate wealth, employment and foreign exchange for the country can be said to be the reason for the NBS GDP growth report. Until the fiscal authorities step up their game and tenaciously adhere to the tenets of the Economic Recovery and Growth Plan (ERGP), the prediction of advocates of currency devaluation is imminent, neither do I see the CBN performing any magic other than what it has been doing and has done.
The monetary authority had over time admonished the fiscal authorities to come up with programmes and policies that will help grow the economy, curb wastages and fiscal indiscipline in the governance, rather than things looking up, it is getting worse. The legislators are flaunting opulence amid pervasive poverty, security of lives and properties can no longer be guaranteed, and there is mounting number of unemployed youths wasting away in frustration. This has led to a spike in crime – kidnapping, internet fraud etc. The government should urgently do something. Nigeria is gradually slipping into economic crisis.
Pre-and post-2015 general elections, even till date, the only organ of government seen to be visible in the economy is the CBN, while others went to sleep. This has led to the apex bank being severally accused of jettisoning its mandate to dabble into fiscal matters.
The truth is there is urgent need for structural reforms, particularly in executing the power sector recovery plan and to holistically prosecute the anti-corruption war if Nigeria is to get out of this despicable situation. Nigeria is gradually sliding back to economic recession, as debt is being amassed without corresponding receipt, more so, with the dipping international crude oil price which has gone far below the budgetary benchmark.
Nguri wrote from Numan, Adamawa State.