The Central Bank of Nigeria (CBN) Tuesday, warned that Nigeria’s economy may relapse into a protracted recession, citing the N2.5 trillion budget deficit recorded by the Federal Government in six months and other factors as major threats to a fragile economic recovery.
Godwin Emefiele, the CBN governor, while reading the communique of the MPC after their meeting, said, “In consideration of the headwinds confronting the domestic economy and the uncertainties in the global environment, the committee decided by a vote of six to two to retain the Monetary Policy Rate, MPR, at 14 per cent alongside all other policy parameters.”
Emefiele said the MPC was seriously worried about the increasing indebtedness of the Federal Government, which resulted in a N2.51 trillion deficit in the first half of 2017 alone.
He said: “The MPC noted the widening fiscal deficit of N2.51 trillion in the first half of 2017 and the growing level of government indebtedness and expressed concern about the likely crowding out effect on private sector investment.
“While urging fiscal restraint to check the growing deficit, the Committee welcomed the proposal by government to issue sovereign-backed promissory notes of about N3.4 trillion for the settlement of accumulated local debt and contractors arrears.”
Emefiele revealed that the MPC also noted that the economy was going through a fragile economic recovery and would require bold fiscal and monetary measures to ensure that the economy does not relapse into a more protracted recession.
He said, “Available forecasts of key macroeconomic indicators point to a fragile economic recovery in the second quarter of the year.
“The committee cautioned that this recovery could relapse in a more protracted recession if strong and bold monetary and fiscal policies are not activated immediately to sustain it.”
Defending retention of MPR at 14%, he said the MPC decided on continuing its tight monetary policy stance.
“We understand that a low interest rate will make it easy for people who want to borrow money to borrow money at low rates. We know easing will inject liquidity into the system.
“But we are saying inflation was over 18 per cent when we started. Even today, with inflation at 16 per cent where we are right now, as at June, it is still considered very high in the light of studies that have been conducted”, he stated.
Recall that the Debt Management Office (DMO) had only recently also cautioned on Nigeria’s borrowing and deficit, revealing that the country’s total debt rose by N4.76trn in 2016.