Home Economy Nigeria at risk of another recession – CBN

Nigeria at risk of another recession – CBN


The Central Bank of Nigeria (CBN) has raised the alarm that Nigeria risks sliding back into another recession.

Addressing journalists at the end of the September, 2018 Monetary Policy Meeting in Abuja on Tuesday Governor of the CBN, Mr. Godwin Emefiele, said members were worried “that the exit from the recession may be under threat as the economy slowed to 1.95 percent and 1.50 percent within the first and the second quarters of 2018 respectively.”

It will be recalled that the CBN raised similar alarm in 2015 and 2016 of an impending recession if certain steps were not taken to address obvious threats to the economy. From late 2016 to 2017, Nigeria plunged into an excruciating recession which the country is barely out of now.

According to Emefiele, “the Monetary Policy Committee (MPC) appraised the macroeconomic environment, and noted that at its July meeting, modest stability was achieved in key indicators including inflation, exchange rate and reserves. In particular, relative stability returned to the foreign exchange market, going by a robust level of external reserves with inflation trending downward for the 18th consecutive months. These gains so far achieved, appear to be under threat of reversal following the new data which provides evidence of weakening fundamentals.”

This threat to the economy he said come from “rising inflation and pressure on the external reserves created by the capital flow reversal as the current challenges grows. It noted that the inflationary pressure has started rebuilding, and capital flow reversal has intensified as shown by the bearish trend in the equities market even though the exchange rate remains very stable.”

The MPC he said “noted that the slowdown emanated from the oil sector, with strong linkages to employment and growth in the key sectors of the economy. In this regard, the committee urged the government to take advantage of the current rising trend in the oil prices to rebuild fiscal buffers, strengthen government finances in the medium term and reverse the current trend of decline in output growth.”

Other threats to the economy which may aggravate the onset of recession, Emefiele warned include “the potential impact of liquidity injection from election related spending, and increase in FAAC distribution which is rising in tandem with increase in oil receipt.”

The Committee he said “was concerned with the rising level of non performing loans in the banking system, traced mainly to the oil sector and urged the banks to closely monitor and address the situation.”

Members of the MPC also expressed concern over the weak intermediation by the Deposit Money Banks and its adverse impact on credit expansion and investment growth by the private sector.

In view of the development, the MPC noted that the economy was still confronted with growth challenges and inflationary pressure but reiterated the need for synergy between the monetary and fiscal authorities as availed option for macroeconomic stability.

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

The committee lamented that the threats to the food supply chain in major food producing states due to poor infrastructure, flooding and the ongoing security challenges may lead to a “rise in food prices contributing to the uptake in the headline inflation.”

However, the committee was optimistic that as harvests progresses, “in the coming months, pressure on food prices would gradually continue to recede while growth enhancing measures would over the medium term, have some moderating impact on food prices.”

The MPC also called on the government to fast track implementation of the 2018 budget to help jump start the process of sustainable economy recovery and to facilitate passage of the Petroleum Industry Bill in order to increase contribution to the overall GDP.

While answering questions on the recent take over of Skye Bank and the change of name to Polaris Bank, Emefiele assured that “the strategic health of the Nigerian banking system remains sound. In every chain, there will always be strong points and weak points in a chain, but what we will continue to do is to make sure that that chain remains strong in all aspects of it.”

Speaking specifically to the Skye Bank issue, the CBN Governor maintained that he will “love to see a situation where banks are not liquidated, that we have to think outside the box to see how much we can ensure that we have more banks in the country than have less number of banks in the country, and that is what we are doing.”

The situation with Skye Bank he explained “is that as at two years ago when the news broke that the bank had slid into negative capital as a result of Non-Performing Loan, at that time, we compelled the entire board and executives to resign and they did.

“After that, before we conducted an internal audit the hole (financial gap) was about N370 billion . After the forensic audit, it came to the level it was today, which is almost about N800 billion. So what we did was to say that having established a hole at this level, tax payers money will be invested in this bank as a loan.

“So we decided that there is a need to let shareholders know, particularly those that have lost their investment, we will try to make sure that small investors remain protected.

“It is for this reason that the name had to be changed for from Skye bank to a sexy name Polaris bank. The name had to be changed for legal reasons, having gotten to the point where the Central Bank of Nigeria has invested close to N800 billion in this bank, at some point it must be seen to be owned by the CBN until we find investors that can pay a fair price for the bank. That is the reason why the name had to change from Skye bank to Polaris Bank.”

On whether Polaris was registered or not before it assumed control of Skye bank, Emefiele stated that, “the insinuations that the company wasn’t registered, is false. It was first of all registered as a limited liability company about three weeks and was registered as a bank on Friday, which is a day before we took that action.

“We should look beyond all that and focus on the real issue, which is that we are embarking on a journey to keep a bank alive, to protect depositors monies and also ensure that we don’t throw over 5,000 staff out into the labour market.”

On the face off with MTN and four other banks, the CBN Governor explained that it was “important to know that the N8.1 billion is the dollar equivalent of MTN’s Naira generated from their profit. So I would neither call it a fine or a penalty.”

What CBN sought by asking MTN to return that money is that we want a reversal of that transaction because it was not finally authorized by the CBN, and because the Fund moved through these four banks, the quantum of dollars that passed through the banks is what we said the banks needed to remit back, or the company needed to remit back to the CBN through the banks.”