Widening negative output gap of -9.10% worries MPC member

A member of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has expressed concern over the widening gap between the actual output of the Nigerian economy and its potential output.

Specifically, Adenikinju, Adeola Festus noted that the unemployment rate is above Non Accelerating Inflation Rate of Unemployment (NAIRU), and the negative output gap widens significantly to -9.10 per cent in the second quarter (Q2).2020, from -2.1per cent  in Q1, 2020, as the monthly Purchasers Market Index shows that employment recovery lags output recovery.

Economists see negative gap as spare capacity, or slack, in the economy due to weak demand and that this occurs when actual output is less than what an economy could produce at full capacity.

The output gap is an economic measure of the difference between the actual output of an economy and its potential output. Potential output is referred to as the production capacity of the economy. ­

In a detailed Personal Statements by the MPC members at the 133 meeting of November 23-24, 2020 Adenikinju also noted that capital inflow remained low and fiscal position of the Government is weak. Oil production and export are below 2020 budget provisions he further observed.

“In addition, the Federal Government interventions should focus more on public works, and capital projects, that offer direct employment to Nigerians, rather than direct cash transfers, given especially the lack of supporting data and institutional weaknesses around direct money transfers in Nigeria.”

Similarly, he said the relative health of the financial sector is strong. The financial soundness indicators for the month of October 2020 were generally good.

“The Non-Performing Loans Ratio improved over the last MPC meeting. The Liquidity Ratio remain above the minimum prudential requirement. The Returns on Equity and Returns on Assets for the Banking Industry are steady and perform relatively better than for comparator countries. Aggregate deposits continue to grow despite the sharp fall in deposit interest rates. Other major industry size indicators like Assets and Credits continue their upward positive trajectories.

“There is improved lending to the real sector by both the deposit money banks and the other financial institutions. These suggest that the CBN is managing the impacts of the pandemic shocks on the financial sector relatively well. Allowing banks to restructure their loans portfolio was a wise decision,” the member stated.

However, the CBN he advised, should continue to maintain strong surveillance over the industry and guide the orderly winding down of the policies put in place to control the impacts of the pandemic on the banking sector.

According to Adenikinju, the impressive performance of the various intervention funds also show that Nigerians are taking advantage of the funds to boost households demand and improve output of small and medium scale enterprises.

“The Bank should continue to monitor the disbursement of the funds to ensure wide access and efficient performance of the funds. Information presented by Bank staff show that there is geographical coverage in the disbursements of the funds.”

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