One of the outcomes of the Monetary Policy Committee (MPC) meeting last week was the alarm raised by the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, that there was no silver lining yet in the economy. He warned that the fundamentals of the economy have started showing signs of weakness, a disturbing situation that would put Nigeria’s exit from recession under severe threat.
It is too early to forget that Nigerian economy exited recession last year after suffering contraction for five consecutive quarters. Two successive recessions could trigger economic depression, with its crippling effects on every sector of the economy.
Statistics support the concerns expressed by the CBN about the current weak fundamentals of the economy and the urgent need to heed the call and reposition the economy. For instance, the growth rate of the Gross Domestic Product (GDP) was 1.95 percent and 1.5 per cent, respectively, in the first and second quarters of 2018. The growth rate is below the projected 7+ percent for the period and less than 3.5 percent forecast for 2018 by the Federal Government. It also came short of the 2.5 percent forecast for the Nigerian economy this year by the World Bank.
Consequently, the slowdown has caused the economy accumulated losses of over N17 trn or 25 percent of current GDP in loss of economic output over a 3-year period. This indicates that the economy remains vulnerable despite exiting recession. The CBN Governor said the economy risks slipping back into another recession if urgent steps were not taken to arrest the looming economic storm. He traced the problem to the late implementation the 2018 Federal budget, weakening demand and consumer spending, among other factors.
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Besides, the committee observed that in spite of the underperformance of key monetary aggregates, headline inflation inched up to 11.23 percent in August, 2018 from 11.14 percent. Altogether, the CBN noted that the gains achieved in recent times appear to have been eroded due to new evidence of weakening economic fundamentals, which impacted negatively on external reserve and exchange rate stability.
The Federal Government should heed the warning from the CBN and work faithfully on the identified problems that could lead to another recession. It will be recalled that the apex bank had in 2015 warned against the last recession but its warning was largely ignored. And again, it has raised the red flag on the economy. This time around, not
heeding the warning may come with dire consequences. Only recently, the National Bureau of Statistics (NBS) expressed the same concerns against the backdrop of falling GDP growth and called for policy implementation that will stimulate economic recovery and sustainable growth. It is time to heed these calls without further delay.
The International Monetary Fund (IMF), the World Bank and financial experts in Nigeria, have also expressed worry that the economy is likely to experience more weakening signals as we approach the 2019 elections. The uncertain economic outlook ahead of next year’s elections is showing already as foreign investors are scaling down their investments in the country. Government must reposition the economy and make the fundamentals strong by diversifying the economy. The implementation of the Economic Recovery Growth Plan (ERGP) is yet to yield the expected results, more than one year after it was unveiled.
As we stated when the Federal Government celebrated the exit from recession last year, we maintain that the government and its policymakers went to sleep rather too early in the day, perhaps taking its eyes off the ball when it ought to strengthen the fundamentals of the economy against the vicissitudes from both the domestic and external markets. Now, as the CBN has rightly observed, the “underlying pressures have started rebuilding and capital flows have intensified as shown by the bearish trend in the equities market.” In fact, as figures from the Nigerian Stock Exchange (NSE) show, the last six months remain discouraging for investors as equity prices have tumbled to an all-time low. This is not the time to play politics with the economy. It is time to face reality that the economy risks slipping back into another recession. Therefore, the government should commence the implementation of the 2018 budget and policies that will encourage credit delivery to the real sector of the economy, boost aggregate demand, stimulate economic activities and reduce unemployment.