Extensive Structural Reform Needed to Accelerate Nigeria’s Economic Growth, CBN Governor Emefiele Says

Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, has reiterated the need for extensive structural reform this year to fast-track the country’s economic growth. Emefiele stated this in his personal comment at the last Monetary Policy Committee (MPC) meeting, a copy of which was posted on Monday on CBN’s website.

Driven by base-year effect, the National Bureau of Statistics (NBS) had revealed that Nigeria’s Gross Domestic Product (GDP) grew by 4.03 per cent in the third quarter (Q3) of 2021, compared with 5. 01 per cent recorded in the preceding quarter. And the federal government had listed the removal of fuel subsidy, which had been described as a major drag on the economy, as one of the reforms it expected to carry out this year.

However, in the MPC communiqué, Emefiele stressed, “Extensive structural reforms are also needed to ensure that long-run paths of growth surpass potential.”

The CBN governor noted that as business sentiments brightened, following the various supply-side supports by the apex bank and orderly implementation of macroeconomic policies, he expected domestic fragility to diminish with benign knock-on effects on welfare and livelihood.

He said, “Our medium-term goal is to fast-track growth above historic average. Economic activities may reach pre-pandemic levels if the resilience of non-oil activities (especially agriculture and manufacturing sectors) are given continued impetus.”

Nigeria recorded eight consecutive months of deceleration in headline inflation rate to 15.4 per cent in November 2021.

According to Emefiele, this reflected the disinflation in both the food and core components.

He stated, “Regardless, inflation remained at unacceptable levels, propped by structural inadequacies. Short-term projections indicate further moderations in expected inflation, especially as development financing continue to resolve supply rigidities.

“Analysis of monetary condition indicated a tepid outcome during the review period with mixed interest rate developments. While weighted average inter-bank call rate fell 3.21 percentage points to 10.00 per cent in October 2021, open-buy-back rate gained 1.07 percentage points to 12.18 per cent.

“Monetary aggregates expanded in October, although, below provisional targets. Broad money growth at 7.10 per cent, was 2.54 per cent points below benchmark.

“The observed growth was, however, attributable to the 9.12 per cent expansion of net domestic assets underpinned by credits to the private sector.”

Emefiele pointed out that the banking system remained stable and resilient with capital adequacy ratio (CAR) at 15.2 per cent; liquidity ratio, 41.2 per cent; and non-performing loans’ (NPLs) ratio at 5.3 per cent.

He, however, acknowledged that in the forex market, the exchange rate pressure had persisted, despite external reserves accretion, while capital market metrics recorded positive performances.

Deputy Governor, Economic Policy Directorate, CBN, Dr. Kingsley Obiora, called for the deployment of more growth-induced policies in order to stimulate economic activities. He said this was why he supported the current “100 for 100” policy on Production and Productivity (PPP) introduced by the CBN.

Obiora said, “The policy will boost production in the manufacturing sector; reduce imports and expand the non-oil exports; improve accretion to external reserves; and ensure exchange rate stability.

“Also, the launching of the Tertiary Institutions Entrepreneurship Scheme (TIES) in November 2021 would enhance entrepreneurship and promote economic growth in strategic sectors of the economy as well as address the challenges of youth unemployment in the country.

“However, given Nigeria’s huge investment needs and limited fiscal space, we must continue to attract the private sector to the critical sectors of the economy through Public-Private Partnership (PPP). This arrangement will enhance efficient development and productivity of infrastructure, human capital and other critical sectors of the economy on a sustainable basis.”

In his contribution, CBN Deputy Governor, Corporate Services Directorate, Mr. Edward Adamu, noted that notwithstanding the positive outcomes so far on inflation and growth, the economy was yet to attain the pre-pandemic levels on several fronts.

Employment, for instance, continued to be a major policy concern, he said, adding, “The surest bet to alleviating poverty is growth in employment, which is tied to economic (output) expansion.

“In effect, the economy needs to expand at a faster rate than has happened up to third quarter 2021, to generate more jobs. Even at the 4.03 per cent overall real growth rate in Q3, some sectors (activities) were still struggling.

“Among those, oil and gas, fishing, and oil refining stood out. These activities and some others that barely crossed the line would continue to require policy support in the short- to medium-term.

“The need to sustain liquidity support to key economic activities is buttressed by the vulnerabilities in the horizon, including new variants of the coronavirus driving infection resurgence.

“The moderation in inflation is occurring at a fast pace, attributable mainly to the consistent effort towards boosting supply, rather than a decline in demand.

“Barring any major shock, the current trajectory is expected to be sustained through the first quarter of 2022. Contrary to what is happening in most other climes, the recovery in domestic demand has not translated to new price shocks.

“Not only has output rapidly increased, the liquidity management strategy has kept banking system liquidity close to its optimal level.”

On his part, an MPC member, Professor Adeola Adenikinju, expressed concern about “the uncertainty around 2022, being a pre-election year,” noting, “usually, foreign investors are less likely to commit to new investment in the country, affecting foreign exchange reserves.”

Adenikinju, however, advised, “Going forward, there is a need to harmonise monetary policy with the monetary and development targets in the newly approved Medium-Term National Development Plan.

“There is also a need to decompose the intervention fund to those that went to boost aggregate demand and those that went into expanding the supply base of the economy. Careful examination of the contributions of these interventions should guide the decision on the pace of winding down the interventions in 2022.

“The CBN must continue to explore ways of further de-risking the critical sectors of the economy to enable the deposit money banks to lend to them.

“As CBN interventions cannot continue in the long term, domestic banks must take on the responsibility of supporting households’ credit and the MSMEs. The unsustainability of petrol subsidy is an issue that the government should address urgently.”

Another MPC member, Professor Mike Obadan, said with rising debt service-to-revenue ratio, currently put at over 90 per cent, heavy debt servicing was taking a toll on lean fiscal resources and could hinder availability of funds to finance critical government programmes and projects.

Obadan stated, “Against the backdrop of limited domestic revenue mobilisation and little or no foreign exchange inflow from oil and gas exports, the government’s fiscal capacity remains weak.

“It requires continued monetary support to drive economic activities towards the desired sustainable growth trajectory.”

Obinna Chima

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