Authors : Robert Asogwa, Barbara Barungi, Ojijo Odhiambo
The Nigerian economy continues to face serious macroeconomic challenges and is in a recession for the first time in decades. Gross domestic product (GDP) growth for 2016 is estimated at -1.5%, with a moderate recovery expected in 2017. This is attributed to a series of shocks, including the continued decline in oil prices, foreign exchange shortages, disruptions in fuel supply and sharp reduction in oil production, power shortages, and insecurity in some parts of the country, as well as low capital budget execution rate (51%). Managers of the economy responded to the recession with a package of monetary, fiscal and exchange rate policies.
The CBN pursued a contractionary monetary policy stance. It increased the monetary policy rate to 14% from 11% in 2015 to attract capital inflow and control upward ticking inflation. To protect priority sectors from the rate hike, the cash reserve requirement was reduced and the amount raised was warehoused to be accessed by priority sectors at a single digit interest rare. The action resulted in an increase in broad money supply which together with cost push factors resulting from fuel, power and foreign exchange shortages contributed to the upward trend in the headline inflation which rose to 15.7% on average in 2016 from 9.1% in the previous year. The fiscal authorities on the other hand pursued an expansionary fiscal policy with the objective of reflating the economy by allocating close to 30% of the budget to capital expenditure. The expansionary budget was planned on the back of existing fiscal consolidation underpinned by domestic resource mobilisation and expenditure rationalisation measures. In addition, the year saw a significant reduction in foreign reserves which fell to USD 25.8 billion as at yearend 2016 from USD 28 billion in the corresponding month of 2015. This was caused by a current account deficit as a result of low oil receipts, rising capital outflow caused by domestic and global financial market conditions and increased use of foreign exchange to defend the naira. A host of administrative measures were introduced to manage foreign exchange demand and an important policy shift was made to a more flexible exchange rate regime.
The 2017 outlook is for a slow economic recovery. Growth is projected at 2.2% as economic policy reforms begin to take hold and a coherent set of policies to address the macroeconomic challenges and structural imbalances is implemented. In this regard, the federal government has developed a framework in the Nigeria Economic Recovery and Growth Plan (2017-20). The plan focuses on five key areas, namely: improving macroeconomic stability; economic growth and diversification; improving competitiveness; fostering social inclusion; and governance and security. Some key reforms have been rolled out, including the conditional cash transfer initiative targeted at the poorest and most vulnerable population, improving capital budget execution, and strengthening public financial management at both state and federal levels.
Security remains a challenge despite gains made in the conflict with Boko Haram in the north east and the intensification of dialogue with militants in the Niger Delta. In addition to a military solution, the federal government is committed to implementing economic recovery and development interventions aimed at addressing the deepening fragility and vulnerability in the conflict-affected north east and the Niger Delta. The Presidential Committee on the North East Initiative (PCNI) was inaugurated towards the end of 2016 and is charged with co-ordination of all assistance and projects targeted at the most affected states in the region. The federal government has started paying out a monthly stipend of NGN 5 000 to the poorest and most vulnerable through the conditional cash transfer initiative of its social investment programme.
The acceleration of the implementation of the Nigeria Industrial Revolution Plan (NIRP) is a key priority for fostering industrialisation. The priority sectors identified are mining and quarrying, which contributed 7.1% to overall GDP in 2016, and manufacturing, which declined 2.6 % yearon-year due to increased costs in business operations, resulting mainly from foreign exchange restrictions. The manufacturing sector recorded a general decline in 2016, with an estimated 272 firms shutting down and industrial capacity utilisation dropping significantly from 51.4% in 2015 to 35.4% in 2016.
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