CBN’s policies hinges on sustained GDP recovery

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Emefiele, Otteh, Ahmad push for more women in leadership positions
Godwin Emefiele, CBN Governor.

… As intervention funds disbursement hits N2.75trn

By Emeka Anaeto, Business Editor

In the past six months public debate has been raging over the outcome of the estimated N2.75 trillion public funds spent to counter the economic impact of COVID-19. The debate has also raised the issue of sustainability in the various laudable measures into a post-Covid economic era.

In 2021, both the fiscal and monetary authorities have found themselves grappling with the downside risks to the optimism for significant improvement in global output recovery. The risks stem largely from the uncertainty surrounding the efficacy of the COVID-19 vaccines in surmounting the new variants of the novel coronavirus, as well as speedy deployment of the vaccines across the globe.

Hopes on the rise again

But in the domestic economy a positive climate appears to be unfolding with the rebound in oil prices. Combined with positive developments in the non-oil sector, it has been a significant booster to the rather surprising exit from recession in the fourth quarter of 2020 which has also brought about a renewed hope for full recovery in 2021, notwithstanding the obvious downside risks to the entire global economy.

Real Gross Domestic Product (GDP), according to the National Bureau of Statistics (NBS), recorded a growth rate of 0.11 per cent (year-on-year) in the fourth quarter of 2020.

The Q4 2020 performance, was a sharp rebound in contrast to the two previous quarters of negative growth (-3.62 per cent in the third quarter and -6.10 per cent in the second quarter). The improved performance was driven by the non-oil sector, which grew by 1.69 per cent in Q4 2020 from -2.51 and -6.05 per cent in Q3 and Q2 2020, respectively. The major drivers were Quarrying and Other Minerals, which grew by 48.42 per cent and the ICT subsector, which grew by 17.64 per cent.

The oil sector, however, contracted further by -19.76 per cent in Q4 2020, from -13.89 and -6.63 per cent in Q3 and Q2 2020, respectively. This was attributed largely to the decrease in oil production in compliance with the OPEC+ production cut agreement.

Some downsides

These were coming at the backdrop of the moderation in the Manufacturing, and Nonmanufacturing Purchasing Managers’ Indices (PMI), which remained below the 50 index points in February 2021, but improved to 48.70 index points apiece, compared with 44.9 and 43.3 index points, respectively, in January 2021. The GDP growth in the fourth quarter of 2020 and expected recovery in Q1 2021, were signposted by this moderate improvement in the PMIs.

The employment level index component of the manufacturing and nonmanufacturing PMIs also improved moderately in February 2021 to 45.6 and 48.0 index points, compared with 44.2 and 45.0 index points, respectively, in the previous month. But the NBS latest reports indicated that unemployment is still on the rise at 33.3 percent with the army of the unemployed at over 23 million.

CBN’s battles

It was against these downsides to the recovery from recession that the Central Bank of Nigeria, CBN, navigated its monetary policy and development finance initiatives in the past nine months and is still juggling the policy options to ensure steady recovery in the medium to long term.

In addition to its direct interventions with stimulus funding of the economy CBN’s measures had incorporated the private sector, especially the private commercial banks in the battle to rescue the economy.

Specifically, monetary policy considerations have been focused on several variables, namely: interest rates, exchange rate, external reserves, as well as the GDP and fiscal pass-through components.

In the area of interest rate, the apex bank had maintained accommodative monetary policy rate at 11.5 percent for several months now to support the economy’s growth recovery with lower cost of funds.

In the area of foreign exchange, the apex bank had focused in stable exchange rate and availability of resources for eligible transactions, despite pressures in the parallel market.

Last week the apex bank assured members of the public that there was enough foreign exchange for them to meet their obligations.

The CBN Governor, Mr. Godwin Emefiele, speaking after the Monetary Policy Committee, MPC, meeting disclosed that the nation’s foreign reserve stood at $36.5billion as at the end of last month, up from $34.5billion in the preceding month.

He stated: “There is enough foreign exchange for people to meet their obligations.  If you have forex obligations, they will be met.  There is no need to panic or for everyone to rush to the bank at the same time and create an atmosphere of panic and give some people the opportunity to rip-off innocent people.

“CBN disburses not less than $80 million to banks weekly.  In fact we will create a help-desk where people can call the CBN directly to complain if you need forex to pay school fees or BTA and say, ‘I went to such and such a bank and was told there if no forex.’”

Emefiele also explained that the nation has not changed its foreign exchange management policy, as the apex bank has continued to adopt the managed-floating strategy.

His words, “Nigeria has not changed it foreign exchange policy.  CBN, as the organisation that has the core mandate to manage the foreign exchange, has continued to watch the market and intervenes in the market, depending on its readings of the market.’’

Good results

The focus of the apex bank’s COVID-19 stimulus package has been on non-oil sector. The GDP report has indicated that the non-oil sector was the driver of the quick recovery from recession even as oil sector recorded further decline.

The non-oil sector expanded by 1.7% recovering modestly from a -2.5% decline in Q3, boosted by telecommunications & information services (17.6% vs 17.4%).

Other significant contributions came from agriculture (3.4% vs 1.4%) which was also heavily supported under the CBN’s funding intervention programmes, especially the Anchor Borrowers Programe, ABP.

While acknowledging the role of the interventions in the impressive performance of the non-oil GDP, the Economic Intelligence Unit of Access Bank Plc, in its report last week stated that ‘‘the surprise rebound means Africa’s largest economy may recover faster than expected this year if the non-oil sector contributors continue to build on this momentum. The growth trend noticed in Q4 is a pointer to the growing importance of the non-crude sector.’’


It was against these moderate positive policy outcomes that the apex bank indicated its resolve to consolidate on the gains so far.

The Monetary Policy Committee, MPC, of the apex bank met last week and expressed some optimism that the legacy growth headwinds, attributed largely to the resurgence in infection rate of COVID-19 pandemic, may likely recede in the short-to-medium term, as the successful deployment of the COVID-19 vaccines and the various stimulus packages to revamp the domestic economy are sustained.

Provisional data showed that banking system credit to the economy increased by 1.75 per cent to N43.67 trillion in February 2021 from N42.92 trillion in January 2021, reflecting the ongoing broad-based monetary and fiscal stimulus to various sectors of the economy.

The MPC thus, enjoined the CBN to maintain its current drive to improve access to credit to the private sector, while exploring other initiatives with the fiscal authorities to improve funding to critical sectors of the economy.

Conscious of the persisting inflationary pressure fuelled largely by continued uptick in food prices, the Committee noted the Bank’s interventions to boost food production particularly through its various Agricultural programmes. Other complementary measures included, increase in disbursement for the dry season agricultural programme to increase output, the adoption of high yield seeds to improve productivity and the adoption of harvested produce as a means of loan repayment, which has stemmed hoarding and the activities of middlemen and rent seekers. The establishment of the strategic grain reserves for staple crops has also helped in addressing seasonality of agricultural commodities.

In terms of funding, the Committee noted that the Bank has disbursed funds under its various agricultural interventions towards improving food supply in Nigeira. The Committee noted the disbursement of ₦107.60 billion to 548,109 farmers cultivating 703,619 hectares of land between Q4 2020 and Q1 2021 to boost dry season output in support of agricultural value chain development. Total disbursements as at end-February 2021 amounted to ₦1.487 trillion under the various agricultural programmes, of which N686.59 billion was disbursed under the Commercial Agricultural Credit Scheme (CACS) and ₦601.75 billion under the Anchor Borrowers Programmes (ABP) to 3,038,649 farmers to support food supply and dampen inflationary pressures.

Under the Targeted Credit Facility, the Bank has disbursed N218.16 billion to 475,376 beneficiaries, of which 34 per cent of beneficiaries are SMEs. Under AGSMEIS, N111.62 billion has been disbursed to 28,961 beneficiaries, 70 percent of which are in the agricultural sector. Under the Creative Industry Financing Initiatives mainly targeted at youths, N3.19 billion has been disbursed to 341 beneficiaries, of which 53 percent is to the movie industry.

Under the National Mass Metering Programme, N33.45 billion has been disbursed to 9 distribution companies for the procurement of 605,852 meters, while N89.89 billion has been disbursed under the Nigeria Electricity Market Stabilisation Facility (NEMSF 2) to 11 distribution companies to improve the electricity supply industry in Nigeria.

Under the N100 billion Health Care intervention Fund, the Bank has disbursed N94.34 billion, and is willing to expand the facility, to 85 projects in the pharmaceutical industry, hospitals and State governments for both brown field and green field projects, mostly to expand pharmaceutical drug lines, acquire MRI and other equipment and upgrade laboratories and other hospital services.

Under the N1.0 trillion Manufacturing Intervention Stimulus, the total of N803.36 billion has been disbursed to 228 projects across various sectors in agro-allied, mining, steel production and packaging industries, amongst others.

All together, the apex bank has disbursed about N2.75 trillion to the economy in stimulus package in the past nine months.


Available data and forecasts for key macroeconomic variables for the Nigerian economy suggest further rebound in output growth for the rest of 2021. This is predicated on the sustained, as well as additional interventions by the monetary and fiscal authorities to keep up the recovery momentum in the economy, favourable upsurge in crude oil prices, foreign exchange market stability and successful deployment of the new COVID-19 vaccines that could further stimulate economic activities and ultimately boost output growth.

It is generally acknowledged that the moderate recovery in output growth in the fourth quarter of 2020 is attributable, mainly to the positive impacts of the several monetary and fiscal measures implemented to reflate the economy.

At its meeting last week, the MPC stated that this provides an opportunity for further consolidation as most projections suggest substantial recovery in several economies across the globe.

But the MPC members expressed concerns about the unabated rising trend of domestic prices and re-emphasized the exigency for monetary and fiscal policy collaboration to finance productive ventures, improve aggregate supply and push down prices.

The MPC reiterated its concerns on the activities of persons and groups causing security challenges in the food producing areas of the country, as this has contributed to the major uptick in food prices across the country.

Considering the foregoing, the fiscal headroom remained constrained and fragile, following the twin shocks of the pandemic and oil price volatility and the continued build-up of public debt.

The apex bank is, therefore, expected to put more effort in the direction of price stability in the face of inflationary pressures.

Though the MPC noted the CBN’s innovative efforts towards maintaining exchange rate stability, it is important the apex bank remain focused on its drive to increase accretion to foreign reserves, especially in its recent incentives to attract diaspora remittances into the country.

In this connection, the MPC already noted the overarching need to address the twin major challenges of taming the rising inflation and sustaining growth recovery in the economy, while focusing on the downside risks associated with the injections.

This state of affairs in the policy environment presented a dilemma to the MPC’s decision last week which relates to whether to continue to focus on efforts to stimulate outputs or whether to focus on reining in inflation, which (at 17.33 per cent) is almost attaining the January 2017 inflation level of 18.72 per cent. MPC was also worried that the level of unemployment must be addressed swiftly to moderate the restiveness among the populace.

Again, members were generally of the view that given that the exit from recession is fragile, any decision to tighten or rein-in inflation, may reverse the fragile recovery and return the economy into recession.

In the light of the foregoing, the consensus among MPC members was that, given that inflation is substantially a supply side phenomenon, there is need to continue to focus on consolidation of the recovery process, by taking those actions that would continue to stimulate output growth, create employment, but at the same time have an eye on effort to moderate the inflationary pressure; using the current administrative measures being adopted by the apex bank in controlling monetary aggregates in the banking system.

In its consideration of whether to tighten, hold or loosen, therefore, the Committee felt that with inflation at a 3-year high and price stability being the CBN’s core mandate, a contractionary policy stance may be required to tame the rising trend. It nevertheless feels that tightening will hike the cost of capital and hamper investments required to create employment and continue to boost recovery.

On the other hand, MPC thinks that whereas loosening would lower rate and improve access to credit which will drive investment, reduce unemployment and stimulate aggregate demand, it feels that loosening will create excess liquidity, which will intensify demand pressure on the foreign exchange market, thereby leading to further depreciation in the currency.

It, therefore, feels that a hold position which encourages CBN to continue to use its various intervention mechanisms to deploy liquidity into employment generation and output stimulating sectors of the economy would be desirable as this would help consolidate the country’s recovery process.

Vanguard News Nigeria

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