CBN Governor Godwin Emefiele told reporters at the end of the Monetary Policy Committee (MPC) meeting in Abuja that they are worried that “the exit from the recession may be under threat as the economy slowed to 1.95 percent and 1.50 percent within the first and the second quarter 2018”.
CBN raised same alarm in 2015 and by 2016 it happened.
The economy plunged into recession shortly after from end of 2016 through 2017.
Emefiele said: “The Monetary Policy Committee appraised the microeconomic environment and noted that at its July meeting, modest stability was achieved in key indicators, including inflation, exchange rate and reserves. In particular, relative stability returned to the foreign exchange market, going by a robust level of external reserves with inflation trending downward for the 18th consecutive months. These gains so far achieved appear to be under threat of reversal following the new data which provides evidence of weakening fundamentals.”
This threat to the economy, he said, comes from “rising inflation and pressure on the external reserves created by the capital flow reversal as the current challenges grow”. He noted that the inflationary measure was rebuilding, and “capital flow reversal has intensified as shown by the bearish trend in the equities market even though the exchange rate remains very stable.”
The MPC, Emefiele said, “noted that the slowdown emanated from the oil sector, with strong linkages to employment and growth in the key sectors of the economy”.
The committee urged the government to take advantage of the current rising trend in the oil prices to rebuild fiscal buffers, strengthen government finances in the medium term and reverse the current trend of decline in output growth.
Other threats to the economy, which may aggravate the onset of recession, Emefiele warned, include “the potential impact of liquidity injection from election related spending, and increase in FAAC distribution, which is rising in tandem with increase in oil receipt.”
The Committee “was concerned with the rising level of non-performing loans in the banking system, traced mainly to the oil sector and urged the banks to closely monitor and address the situation.”
Members of the MPC were concerned over the weak intermediation by the Deposit Money Banks and its adverse impact on credit expansion and investment growth by the private sector.
The MPC noted that the economy was still confronted with growth challenges and inflationary pressure but reiterated the need for synergy between the monetary and fiscal authorities as availed option for macroeconomic stability.
The MPC also called on the fiscal authorities “to intensify the implementation of the Economic Recovery and Growth Plan (ERGP) to stimulate economic activities, bridge the output gap and create employment.”
The committee lamented that the threats to the food supply chain in major food producing states due to poor infrastructure, flooding and security challenges may lead to a “rise in food prices, contributing to the uptake in the headline inflation”.
However, the committee was optimistic that as harvests progress, “in the coming months, pressure on food prices would gradually continue to recede while growth enhancing measures would over the medium term, have some moderating impact on food prices”.
The MPC called on the government to fast track implementation of the 2018 budget to help jump start sustainable economic recovery and to facilitate passage of the Petroleum Industry Bill to increase contribution to the overall GDP.
