Rising Oil Price: CBN Urges FG to Save to Avert Another Recession

By Dipo Olowookere

The Central Bank of Nigeria (CBN) on Tuesday warned of a looming fall into another recession if efforts are not being made to boost the economy.

This warning was given at the end of the two-day Monetary Policy Committee (MPC) meeting held in Abuja.

Addressing reporters yesterday, CBN Governor, Mr Godwin Emefiele, noted that during the meeting, the committee identified rising inflation and pressure on external reserves created by capital flow reversal as the current challenges to growth.

According to him, inflationary pressures have started rebuilding and capital flow reversals have intensified as shown by the bearish trend in the equities market even though the exchange rate remains very stable.

Mr Emefiele told newsmen that at the July meeting of the MPC, members had lauded the modest stability achieved in key indicators, including inflation, exchange rate and external reserves, buoyed by a robust level of external reserves with inflation trending downwards for the 18th consecutive month.

However, he emphasised that the gains recorded as at the last time the committee met before yesterday appear to be under threat of reversal, following new data which provides evidence of weakening fundamentals.

He said available data from the National Bureau of Statistics (NBS) showed that real GDP growth declined by 45 basis points as the economy grew by 1.50 percent in the second quarter of 2018, down from 1.95 percent in the preceding quarter, but higher than 0.72 percent in the corresponding quarter of 2017.

“The committee was concerned that the exit from recession may be under threat as the economy slowed to 1.95 and 1.50 percent in Q1 and Q2 2018, respectively,” Mr Emefiele said during the briefing.

He said the committee attributed the slowdown in economy to drop in the oil sector, with strong linkages to employment and growth in other key sectors of the economy.

According to him, in order to avoid another recession, federal government must take advantage of the current rising oil prices to rebuild fiscal buffers, strengthen government finances in the medium term and reverse the current trend of decline in output growth.

“The MPC also called on the fiscal authorities to intensify the implementation of the Economic Recovery and Growth Plan (ERGP) to stimulate economic activity, bridge the output gap and create employment,” he said.

The CBN chief further disclosed that the committee noted that disruptions to the food supply chain in major food producing states due to the combined effects of poor infrastructure, flooding and the on-going security challenges resulted in a rise in food prices, contributing to the uptick in headline inflation.

However, he said the committee expressed optimism that as harvests progress in the coming months, pressure on food prices would gradually recede, while growth enhancing measures would over the medium term have some moderating impact on food prices.

He said the MPC was of the view that even though growth remained weak, the effective implementation of the 2018 capital budget and policies that would encourage credit delivery to the real sector of the economy would boost aggregate demand, stimulate economic activity and reduce unemployment in the country.

Business Post recalled that in the second quarter of 2016, Nigeria slipped into recession and only exited in the second quarter of 2017.

Some weeks ago, the Statistician General of the federation, Mr Yemi Kale, disclosed that the Nigerian economy was presently in a recovery stage.