CBN warns of imminent recession, retains interest rates

• Apex bank liberalises forex , BDCs, oil marketers to source independently
• Govt’s payroll audit blocks N500b to 14,000 ghost workers
Nigeria is on the brink of recession. This is due to the low level of economic activities in the country occasioned by the late passage of the Federal Government budget by the current administration which has made the country to suffer two successive negative quarters.

The alarm was raised by the Central Bank of Nigeria (CBN) yesterday as part of the outcome of the apex bank’s Monetary Policy Committee (MPC) meeting headed by the CBN Governor Godwin Emefiele.

Ostensibly as part of a general stimulus package to mitigate the economic pains, the CBN at the meeting maintained all the key interest rates regime at 12 per cent below the inflation rate of 13.72 per cent.

The CBN also announced a plan to commence a flexible management of the foreign exchange (forex) regime in the country. The implication is that the current dispensation which places the naira at a fixed rate against major currencies of the world, including the United States dollar to which it exchanges N200 at the official window and about N320 at the parallel market, is to give way to the forces of demand and supply to determine the true value of the national currency and the exchange rate at both the interbank and the parallel markets.

The development, experts however believe, would see to the convergence of the two market rates which has since widened, thus creating arbitrage for some privileged individuals who get forex allocation at the official window but trade at the parallel end for huge profit.

The MPC observed that the shoddy implementation of budgets in the country as well as other fiscal polices like the high energy tariff were part of measures decelerating growth in the country and recommended a more coordinated synergy between the monetary and fiscal authorities in the country to check the trend.

Disclosing the committee’s conclusion that recession is imminent, the CBN governor said : “ 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. 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. 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 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. 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.

Against this backdrop, data from the National Bureau of Statistics (NBS) for May 2016, indicated that domestic output in Q1, 2016 contracted by 0.36 per cent, the first negative growth in many years. This represents a drop of 2.47 percentage points in output from the 2.11 per cent reported in the last quarter of 2015, and 4.32 percentage point lower than the 3.96 per cent recorded in the corresponding period of 2015. . Only agriculture and trade grew by 0.68 per cent and 0.40 per cent, respectively, while Industry, Construction and Services recorded negative growth of -0.93, -0.26 and -0.08 percentage point, respectively.”

Despite the new plan, the CBN governor yesterday said a certain quota of the forex is to be reserved at the subsisting official window for intervention in key critical areas to boost industrial and investment activities as well as drive government’s diversification plan.

Providing hints ahead of the promised detailed forex flexibility plan, Emefiele said bureaux de change (BDC) operators and oil marketers, which lately began an agitation for sourcing of their forex at official window, would continue with the autonomous market.

He noted that the committee, in its assessment of the relevant risk profiles, came to the conclusion that although the balance of risks remained tilted against growth, previous decisions needed to be given time.

Already, financial experts have commended the decision as going in the right direction, but warned that the modalities for the implementation of the policy must be fully disclosed alongside transparency and control measures.

The Group Treasurer, Access Bank Plc, Dapo Olagunju, noted that even the announcement effect was capable of impacting positively in the short term, pending the full disclosure and implementation of the modalities.

To the Chief Executive Officer of Financial Derivatives Limited, Bismarck Rewane, the turn of events and a full implementation of the policy would mark the beginning of better decisions to come, saying this would readily adjust rate parity and attract inflows.

Also, the Chief Executive Officer of Time Economics, Dr. Ogho Okiti, said while he never expected major changes in the exchange rate, the introduction of the policy would help mitigate some of the structural imbalances prevalent at the market.

Meanwhile, the Federal Ministry of Finance yesterday announced that the audit of its payroll system where N165 billion is paid out monthly as salaries has paid off so far with the uncovering of the sum of N50 billion which has been going to private pockets in the names of some 14,000 ghost workers.

The revelation was made yesterday by the Finance Minister , Mrs. Kemi Adeosun at the kickoff of the audit for the Federal Ministry of Interior as well as paramilitary agencies within the ministry such as the Immigration Services ; the Nigerian Prison Services ; the Nigerian Security and Civil Defence Corps as well as the Federal Road Safety Corps.