Recession exit: expecting CBN’s further interventions to sustain growth



It has been widely agreed that the Federal Government, through the Central Bank of Nigeria (CBN)’s interventions played a significant role in Nigeria’s exit from Covid-19 induced recession.

Nigeria’s economy surprisingly exited recession in the fourth quarter (Q4) 2020 driven by growth agriculture and telecommunications.

According to the National Bureau of Statistics (NBS), Nigeria’s Gross Domestic Product (GDP) grew by 0.11% (year-on-year) in real terms in the fourth quarter of 2020, representing the first positive quarterly growth in the last three quarters.

Though weak, the positive growth reflects the gradual return of economic activities following the easing of restricted movements and limited local and international commercial activities in the preceding quarters.

Impact of Covid-19

The onset of the COVID-19 pandemic in the 1st half of 2020, and the measures put in place to contain the spread of the virus, caused a significant shock to Nigerian economy. The downturn in economic activity, which was particularly significant in the 2nd quarter of the year, was driven by a series of external factors such as the drop in commodity prices, outflows of portfolio funds, supply chain disruptions, in addition to the lockdown measures imposed, in order to curtail the spread of the virus.

Consequently, the Nigerian economy contracted by 6.1 percent in the 2nd quarter of 2020, down from a positive growth of 1.87 percent recorded in the 1st quarter of 2020.

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CBN’s role in pushing exit from recession

In response to the impact of COVID-19 on key economic variables including inflation, exchange rate, external reserves, the fiscal and monetary authorities took unprecedented measures to prevent the economy from going into a tailspin.

“Our first objective was to restore stability to the economy by providing assistance to individuals, SMEs and businesses that had been severely affected by the pandemic, as well as by the lockdown measures,” Godwin Emefiele, governor of the CBN said.

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Some of the measures taken by the CBN include:

i. A one-year extension of the moratorium on principal repayments for CBN intervention facilities;

ii. Reduction of the Monetary Policy Rate (MPR) rate by 200 basis points from 13.5 to 11.5 percent, between May and September 2020 in order to spur lending.

iii. Regulatory Forbearance was granted to banks to restructure loans given to sectors that were severally affected by the pandemic

iv. Reduction of the interest rate on CBN intervention loans from 9 to 5 percent

v. Mobilization of key stakeholders in the Nigerian economy through the CACOVID alliance, which led to the provision of over N25bn in relief materials to affected 13 households, and the set-up of 39 isolation centers across the country.

vi. Strengthening of the Loan to Deposit Ratio policy (LDR), which has resulted in a significant rise in loans, provided by financial institutions to banking customers, credit to the private sector rose by 17 percent in 2020.

vii. Disbursement of over N204 billion to 447,671 beneficiaries, under the target credit facility for affected households and small and medium enterprises, through the Nirsal Microfinance Bank

viii. Disbursements of over N83.9 billion in loans to pharmaceutical companies and healthcare practitioners, to support 81 healthcare projects, which would expand 14 and strengthen the capacity of the healthcare institutions.

ix. Disbursements of over N476 billion out of N1 trillion facility to support 76 manufacturing and real sector projects, which would boost local manufacturing and production across critical sectors.

x. Disbursements of over N260bn to 1.28 million farmers under the Anchor Borrowers Scheme in 2020 to support cultivation of key staple items by farmers.

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Analysts’ suggestions on what the monetary authority can do more to sustain growth?

“The CBN should rev up its developmental function initiatives by focusing more on interventions in the Agric value chain,” said Uche Uwaleke, professor of capital market and president, Capital Market Academics of Nigeria.

He said the agriculture sector was largely responsible for the country’s exit from recession. It contributed about 26 percent to GDP in the previous quarter and grew by 3.42 percent in real terms. The sector also employs a majority of the population.

“This is one proof that the CBN intervention in the sector is yielding result with rice pyramids now being witnessed in some States,” Uwaleke said.

“So, this calls for a deliberate effort to widening the scope in terms of products coverage and scaling up the interventions with respect to disbursements to genuine beneficiaries.

“Doing so will not only go a long way in stemming the rising food inflation, but will also help to create more job opportunities especially if the government is seen to be aggressively tackling the challenge of insecurity,” he said.

Taiwo Oyedele, head of Tax and Corporate Advisory Services at PwC said the CBN needs to signal clarity regarding exchange rate policy with the objective to gradually move towards rates convergence. This will help build investors’ confidence and attract FX liquidity in the form of Foreign Portfolio Investment (FPI), Diaspora remittances and more importantly Foreign Direct Investment (FDI) to stimulate economic growth.

On his part, Akintunde Olusegun, analyst at Polaris Bank Limited, said, the CBN should continue to encourage banks to lend to real sector and Small and Medium Enterprises (SMEs).

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It should continue to monitor the foreign exchange policies and sensitise Nigerians in Diaspora through enlightenment programmes that would bring confidence and attract inflows into the country.

He said Diaspora channel can be maximised, as it would go a long way easing the dollar scarcity in the economy. Following the introduction of the naira for dollar scheme, he said there should be enlightenment programme across countries where Nigerians reside, like U.S, UK, China, Germany, Europe, Middle East, and Canada, among others, to build their confidence in the economy.

Olusegun said the CBN should work in partnership with the fiscal authority because monetary policy alone cannot achieve the desired growth.

Recent actions of the CBN towards sustaining growth

The CBN on March 4, 2021, extended the discounted interest rate for its intervention facilities by another 12 months to February 28, 2022. This was seen as big boost for an economy that is licking its wounds from recession.

The CBN on March 5, 2021, assured support to multilaterals willing to invest in Nigeria as Procter & Gamble, an American multinational consumer goods corporation invest $35 million into local production of Oral Care toothpaste, Oral B in Nigeria.

On March 6, 2021, the CBN introduced a new foreign exchange policy where it plans to pay N5 for every one dollar received by all recipients of diaspora remittances through its licensed International Money Transfer Operators (IMTOs).

The move tagged as ‘CBN Naira 4 dollar’ scheme is an incentive introduced by regulator to boost inflows of diaspora remittances into the country.

The new policy on remittances flow by the CBN, which offers to reward recipients of diaspora remittances is expected to reduce costs and check round tripping, according to the regulator.


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