Let the blame game begin!
The Central Bank in its monetary policy communique today revealed it is going to adopt a “greater flexibility in the inter-bank foreign exchange market structure, and to retain a small window for critical transactions.” The announcement was in no small measure an admission of defeat by the CBN, further confirmation that their policies over the last year have more or less failed.
As a matter of fact, the CBN predicted that a recession was imminent by the time the second quarter GDP result is released, an admission of policy failure and an acceptance of fait accompli.
With some of the conditions that led to the contraction in Q1, 2016 still largely unresolved, the weak outlook for growth which was signaled in July 2015 could extend to Q2.
Despite his admission, the CBN Governor Godwin Emefiele appears unwilling to shoulder the blame alone. He blamed the negative GDP growth rate, and other economic travails being suffered by Nigerians on the Government’s inability to pass the budget. Emefiele would have us rather not blame his policies, but place the blame on economic challenges faced by the country. Here is an excerpt of the MPC Communique.
- The CBN is basically saying that price hike for consumer goods hampered the ability of businesses to invest.
“In the first quarter of 2016, the economy suffered from severe shocks related to energy shortages and price hikes, scarcity of foreign exchange and depressed consumer demand, among others.Consequently economic agents could not undertake new investments or procure needed raw materials.”
- Low oil prices ensured foreign reserves was very low
Shortage of foreign exchange arising from low crude oil prices manifested in low replacement levels for raw materials, other inputs as well as new investments.
- Bombings and pipeline vandalization affected gas production required for generators to generate power
In addition, the energy crisis experienced in the first five months of the year, resulted in increased power outages and higher electricity tariffs, as well as fuel shortages; which led to factory closures in some cases.
- The budget fiasco which led to its continued delay failed to provide the right stimulus required to revive the economy
The prolonged budget impasse denied the economy the timely intervention of complementary fiscal policy to stimulate economic activity in the face of dwindling foreign capital inflows.
In summary, and according to the CBN, once the above issues are resolved, the economy will perhaps bounce back. Emefiele admitted that there is nothing that the CBN could do within its powers to change things.
Aggregate credit to the private sector remained highly tapered while credit to government grew beyond the programmed benchmark for the period. The Committee, however, noted that many of the prevailing conditions in the economy during the review period were outside the direct control of monetary policy, but hopes that the implementation of the 2016 Federal Budget, supported by relevant sectoral policies and easing supply shocks in energy and critical inputs, would provide the needed boost to the economy.