- Nigeria Needs Strong Fiscal, Monetary Policies to Exit Recession
The Monetary Policy Committee of the Central Bank of Nigeria on Tuesday warned that the economy might relapse into protracted recession if bold monetary and fiscal policies were not activated immediately to sustain the programmes of the Federal Government.
The committee stated that available forecasts of key macroeconomic indicators pointed to a fragile economic recovery in the second quarter of the year.
Data from the National Bureau of Statistics showed that the contraction in the economy moderated to 0.52 per cent in the first quarter.
The MPC identified the downside risks to economic outlook to include weak financial intermediation, poorly targeted fiscal stimulus and absence of structural programme implementation.
The CBN Governor, Mr. Godwin Emefiele, while reading the communique after the end of the committee’s two-day meeting, called for more fiscal measures to stimulate the economy.
He said there was a need for improvements in economy-wide non-oil exports, especially agriculture, manufacturing, services and light industries.
He also said the expected fiscal stimulus, non-oil federal receipts and other measures that were expected to drive the growth impetus for the rest of the year must be pursued relentlessly.
Emefiele stated, “Available forecasts of key macroeconomic indicators point to a fragile economic recovery in the second quarter of the year. The committee cautioned that this recovery could relapse into a more protracted recession if strong and bold monetary and fiscal policies are not activated immediately to sustain it.
“Thus, the expected fiscal stimulus and non-oil federal receipts, as well as improvements in economy-wide non-oil exports, especially agriculture, manufacturing, services and light industries, all expected to drive the growth impetus for the rest of the year, must be pursued relentlessly.”
He added, “The committee expects that timely implementation of the 2017 budget, improved management of foreign exchange, as well as security gains across the country, especially in the Niger Delta and north-eastern axis, should be firmly anchored to enhance confidence and sustainability of economic recovery.
“The committee identified the downside risks to this outlook to include weak financial intermediation, poorly targeted fiscal stimulus and absence of structural programme implementation.”
Emefiele also said the committee expressed concern over the N2.51tn fiscal deficit of the Federal Government in the first half of this year, adding that it was stifling the growth of the private sector.
He welcomed the move by the fiscal authorities to engage the services of asset tracing experts to investigate the tax payment status of 150 firms and individuals in an effort to close some of the loopholes in tax collection and improve government revenue.
However, the governor said the committee expressed concern about the slow implementation of the 2017 budget and called on the relevant authorities to ensure timely implementation, especially, of the capital portion, in order to realise the objectives of the Economic Recovery and Growth Plan.
He added, “The MPC expressed concern over the increasing fiscal deficit estimated at N2.51tn in the first half of 2017 and the crowding out effect of high government borrowing.
“While urging fiscal restraint to check the growing deficit, the committee welcomed the proposal by the government to issue sovereign-backed promissory notes of about N3.4tn for the settlement of accumulated local debts and contractors’ arrears.
“The committee, however, advised the management of the bank (CBN) to monitor the release process of the promissory notes to avoid an excessive injection of liquidity into the system, thereby offsetting the gains so far achieved in inflation and exchange rate stability.”
On the outlook for financial system stability, the CBN governor said the MPC noted that in spite of the resilience of the banking sector, the prolonged weak macroeconomic environment had continued to impact negatively on the sector’s stability.
He noted that the committee reiterated its call on the apex bank to sustain its intensive surveillance of Deposit Money Banks’ activities for the purpose of promptly identifying and addressing vulnerabilities.
The committee, according to Emefiele, also called on the DMBs to support economic recovery and growth by extending reasonably-priced credit to the private sector.
On the Monetary Policy Rate, the governor said the committee voted to leave the rate unchanged at 14 per cent.
He explained that the six members of the committee agreed to maintain the current monetary policy stance.
He, however, added that two members voted to ease the Monetary Policy Rate.
The governor said apart from the MPR, which was retained at 14 per cent, the committee also retained the Cash Reserves Ratio at 22.5 per cent.
Also retained were the Liquidity Ratio at 30 per cent; and the Asymmetric Window at +200 and -500 basis points around the MPR.
Explaining the reason for holding the rates despite calls by the Minister of Finance, Mrs. Kemi Adeosun, and the Senate President, Bukola Saraki, for a reduction, Emefiele said that inflation rate, expected to fall by August, still had a strong base effect on the monetary policy stance.
According to him, the MPC believes that at this point, developments in the macro economy suggest the options of either to hold or to ease the monetary policy stance.
He said the committee was not unmindful of the high cost of capital and its implications on the ailing economy, but noted the liquidity surfeit in the banking system and the continuous weakness in financial intermediation.
While easing at this point will signal the committee’s sensitivity to growth and employment concerns by encouraging the flow of credit to the real economy, he stated that the rate of inflation, currently at 16.1 per cent, was capable of retarding growth.
He added that any reduction in interest rate at this time would reduce the cost of debt servicing, which was actually crowding out government expenditure.
ECOWAS@46: Commission Seeks Trade Partnership With OPS To Deepen Intra-African Trade
The Economic Community of West African States (ECOWAS) in commemoration of its 46th anniversary has sought partnership with the Organised Private Sector (OPS) to deepen intra-African trade and lift millions out of poverty.
This was revealed yesterday by the president of the ECOWAS Commission, Mr. Jean-Claude Brou, at a webinar organised in collaboration with the Lagos Chamber of Commerce and Industry (LCCI) yesterday.
The theme of the webinar is “Optimising Sustainable Trade, Investment and Regional Economic Integration through Effective Partnership between ECOWAS Institutions and the Organised Private Sector”.
Jean-Claude, represented by Mr. Kolawole Sopola, Acting Director, Trade, ECOWAS, said the commission, in recognition of the private sector’s role, created a stronger framework to boost the sector’s capacity for enhanced trade.
He said that the commission had also adopted more than 100 regional standards with 70 others under development on some products.
Brou listed mango, cassava, textile and garments as well as information and communication technology among such products.
“The growing importance of informal trade compels the ECOWAS to create a framework expected to engender more availability and reliability of up to date information on informal trade.
“The framework also seeks to implement reform that is essential to eliminate obstacles to informal trade among others.
“It is important to improve investment, particularly, private investment, in all sectors and I stress that digitalization must be at the center of activities for economic recovery.
“Infrastructural deficit must be addressed as well as sustainable and cheaper energy for the competitiveness of products.”
“The commission is developing projects on roads, renewable energy and education, needed for private sector development; all these to lift millions in the sub-region out of poverty,” he said.
Dr. George Donkor, President of, ECOWAS Bank for Investment and Development (EBID) said that many western states showed numerous hurdles to overcome as countries continue to export raw materials, therefore maintaining low levels of development.
Donkor, however, said that reforms were already underway to accelerate the capacities of the Micro, Small and Medium Enterprises (MSME) to spur private sector development for intra-African trade.
He noted that the EBID 2025 strategy was aimed at ensuring that the private sector benefitted up to 65 percent of the $1.6 billion available facilities.
“A vibrant private sector is key in driving regional integration and securing its active participation and has the potential to create a win-win situation for all participants.
“Increasing credit to the private sector will enhance capacity and the EBID is ready with strategies to ensure that the sector’s capacity is boosted,” he said.
Also, Otunba Niyi Adebayo, Minister of Industry, Trade and Investment, said that collaboration across societal sectors had emerged as one of the defining concepts of international development in the 21st century.
He stressed the need for ECOWAS member states to work together as a bloc to take advantage of the opportunities in the African Continental Free Trade Area.
“Since the establishment of ECOWAS in 1975, various protocols and supplementary protocols regulating member countries conduct have been signed.
“Our world has limited resources — whether financial, natural, or human — and as a society we must optimize their use.
“The fundamental of a good partnership is the ability to bring together diverse resources in ways that we can together achieve more impact, greater sustainability and increased value for all.
“This is so because it emphasises the need to work together as a bloc to leverage and take advantage of the opportunities offered by the African Continental Free Trade Area.
“My Ministry will do everything possible to ensure that the vision of the commission is taken to the next level,” he said.
IMF Retains 2.5 Percent Economic Growth Estimate For Nigeria
The International Monetary Fund (IMF) has retained Nigeria’s 2.5 percent economic growth forecast for 2021.
The institution said this in its World Economic Outlook (WEO) for July titled “Fault Lines Widen in the Global Recovery” released on Tuesday in Washington DC.
According to it, the slow rollout of vaccines is the main factor weighing on the recovery for Low-Income Developing Countries (LIDCs) which Nigeria is part of.
It also retained its 6.0 percent growth forecast for the global economy for 2021 and 4.9 percent in 2022, adding that though the global forecast was unchanged from the April 2021 WEO, there were offsetting revisions.
The IMF had at its 2021 Virtual Spring Meetings in April, projected a 2.5 percent growth for Nigeria’s economy in 2021, up from 1.5 percent it projected in January.
It said that in LIDCs, the overall fiscal deficit in 2021 was revised up by 0.3 percentage points from the April 2021 WEO, mainly because of the re-emergence of fuel subsidies as well as the additional COVID-19 and security related support in Nigeria.
“Still, at 5.2 percent of Gross Domestic Product (GDP), the overall fiscal deficit remains well below that of advanced and emerging market economies, reflecting financing constraints, about 60 percent of LIDCs are assessed to be at high risk of or in debt distress.
“The public debt-to-GDP ratio for 2021 is projected at 48.5 percent.
“Several LIDCs have announced an intention to restructure their debts and some have sought debt relief under the G20 Common Framework (Chad, Ethiopia, and Zambia),” it said.
On the global scene, the IMF said that uncertainty surrounding the global baseline remain high, primarily related to the prospects of emerging market and developing economies.
It added that although growth could turn out to be stronger than projected, downside risks dominated in the near term.
“On the upside, better global cooperation on vaccines could help prevent renewed waves of infection and the emergence of new variants, end the health crisis sooner than assumed, and allow for faster normalisation of activity, particularly among emerging market and developing economies.
“Moreover, a sooner-than-anticipated end to the health crisis could lead to a faster-than-expected release of excess savings by households, higher confidence and more front-loaded investment spending by firms.”
On the downside, it said growth would be weaker than projected if logistical hurdles in procuring and distributing vaccines in emerging markets and developing economies led to an even slower pace of vaccination than assumed.
The report added that such delays would allow new variants to spread, with possibly higher risks of breakthrough infections among vaccinated populations.
“Emerging market and developing economies, in particular, could face a double hit from tighter external financial conditions and the worsening health crisis, further widening the fault lines in the global recovery.
“Weaker growth would, in turn, further adversely affect debt dynamics and compound fiscal risks.
“Finally, social unrest, geopolitical tensions, cyber-attacks on critical infrastructure, or weather-related natural disasters, which have increased in frequency and intensity due to climate change could further weigh on the recovery.”
On ensuring a fast-paced recovery, the IMF said the highest priority was to ensure rapid, worldwide access to vaccines and substantially hasten the timeline of rollout relative to the assumed baseline pace.
According to it, the global community needs to vastly step up efforts to vaccinate adequate numbers of people and ensure global herd immunity.
This, it said, would save lives, prevent new variants from emerging and add trillions to the global economic recovery.
FG to Put an End to N360 Billion Annual Electricity Subsidy Payments in 2022 – Osinbajo
Vice President Yemi Osinbajo on Monday said the Federal Government will end an estimated N360 billion annual subsidy payments in the electricity sector in 2022. This represents a monthly subsidy payment of N30 billion.
Osinbajo disclosed this while speaking at the 14th Nigerian Association for Energy Economics/IAEE conference in Abuja on Monday.
At the conference titled “Strategic responses of energy sector to COVID-19 impacts on African economies“, the vice president, who was represented by Engr. Ahmad Zakari, the Special Assistant to the President on Infrastructure, said the federal government would be investing over $3 billion in the sector to strengthen distribution and transmission infrastructure across the nation.
He stated that the numerous efforts of President Muhammadu Buhari at ensuring the power sector plays a critical role in the growth of the nation’s social and economic well-being will materialise fully once the ongoing reform in the energy sector is complete.
He said: “Electricity tariff reforms with service-based tariff has led to collections from the electricity sector by 63 per cent, increasing revenue assurance for gas producers and stabilizing the value chain.
“It is anticipated that all electricity market revenues will be obtained from the market with limited subsidy from next year as reforms in metering and efficiency with the DISCOs continue to improve.
“Accelerated investment in transmission and distribution, over $3 billion will be out into this sub-segment of the electricity value chain that will put us on the path to delivering 10 gigawatts through the interventions of the Central Bank of Nigeria, Siemens partnership, World Bank and Africa Development Bank, and others.”
He said as the electricity sector continued to be stabilized, more power was needed for the country’s large population.
“That is why this administration continues to invest in generation to cater for our current and future needs,” he said.
Osinbajo charged the participants to come up with solutions to key energy challenges facing the country, especially with the COVID-19 pandemic and energy transition.
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