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SUNDAY VANGUARD, FEBRUARY 28, 2021, PAGE 15
Vanguard/Bankers'Committee Economic Summit
ECONOMY: 2021 is our
year of active recovery
— Emefiele, CBN Governor
Central Bank of Nigeria (CBN) Governor, Godwin Emefield,
CON, says 2021 is expected t be a yer of active recovery for the
global economy and Nigeria must not be left out. He spoke during
Vanguard Economic Summit organised in collaboration with
the Bankers Committee in Lagos on Friday.
Godwin Emefiele,
CBN Governor
IT is indeed a pleasure to participate in
this Summit, organized by the Van
guard Newspapers, and please permit
me to express my deepest appreciations to a
man I have great respect for, the publisher
of Vanguard Newspaper, fondly called Uncle
Sam Amuka. I would also like to thank
his management team, for their relentless
efforts towards the success of today’s event.
Given the external and domestic factors that
are influencing current outcomes in our
economy, I believe this summit presents a
significant opportunity to address critical
stakeholders on events that are shaping our
economy, and the policy responses being
embarked upon by the Central Bank of Nigeria
to support faster economic growth and
continued stability of our financial system.
It is in this light that the theme of today’s
conference ‘Bankers’ Initiative for Economic
Growth’ is appropriate and timely when we
take into account the unprecedented impact
of the COVID-19 pandemic on the global
economy and indeed the Nigerian economy
in 2020. Policy makers across the globe
have been faced with a dual challenge of
trying to address an public health crisis, and
a major economic challenge. Before I speak
to the efforts we are making on both fronts,
let me first summarize the economic spillovers
we have suffered from COVID-19.
Economic Impact
of COVID-19
As most of us are aware, the spread of the
virus, along with the corresponding containment
measures, led to a significant slowdown
in global growth in the first half of
2020. Countries such as the United States,
United Kingdom, India and South Africa
witnessed contractions of 9.5 percent, 20
percent, 24 percent and 17 percent respectively
in the 2nd quarter of 2020. Commodity
exporting countries like ours also faced
significant revenue challenges as commodity
prices such as crude oil, dipped by over
65 percent in the 1st half of the year. In addition,
investors pulled over US$100 billion
from emerging market countries in the 1st
half of the year, which resulted in a corresponding
depreciation in the currencies of
several emerging market countries.
Global Response
As a result of the downturn in growth, advanced
and emerging market countries implemented
series of conventional and unconventional
measures, aimed at curtailing
the spread of the virus and stimulating greater
economic recovery. In the United States,
the Federal Reserve acted boldly and swiftly
with policy actions amounting to over
US$3 trillion in liquidity support to households,
businesses, and financial markets, On
fiscal policy front, the US government committed
over $4 trillion to mitigate the effects
on the downturn on households and
businesses. In total, US stimulus measures
amount to close to 35 percent of its GDP. In
the United Kingdom, the Bank of England
has, so far, committed $1.2 trillion as part
of its quantitative easing program, in addition
to fiscal measures amounting to £280
billion ($375 billion). This is equivalent to
roughly 56 percent of the UK’s GDP. In
emerging markets like India and South Africa,
we have seen combined fiscal and monetary
stimulus efforts of close to 15 5 percent
($400bn) and 10 percent of GDP ($26
billion) respectively. In Nigeria our combined
stimulus measures so far is about
US$18 billion, which is close to 4.5 percent
of our GDP. Contrary to expectations by
some analysts that the Covid-19 pandemic
would lead to a prolonged downturn in the
global economy, they did not quite envisage
the proactive forcefulness with which policymakers
could r e s p o n d t o t h e c r i s
i s . I n d e e d , t h e unprecedented amount
of stimulus, along with the successful development
of several vaccines, and easing of
movement restrictions, helped to support a
robust and faster-than expected recovery in
the 2nd half of the year. The United States,
India, UK and South Africa witnessed positive
growth of 7.5, 21.9, 16.1 and 6 13.5 percent
respectively in the 3rd quarter of 2020.
Notwithstanding these recoveries, most advanced
and emerging market countries
including Nigeria, but with the
exception of China, are expected
to see full year negative growth in
2020. According to the IMF, global
growth is expected to decline
by 3.5 percent in 2020 but would
recover sharply to a growth of 5.5
percent in 2021.
Consequently, 2021 is expected
to be a year of active recovery for
the global economy and Nigeria
must not be left out. In Nigeria, 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 our 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.
The over 70 percent decline in crude oil
prices in the first half of the year, led to a
significant reduction in our foreign exchange
earnings. Today, crude oil prices
have recovered from its low of $19 per barrel
in April 2020, and currently stand at an
average of $60 per barrel. The drop in crude
oil earnings and associated reduction in foreign
portfolio inflows significantly affected
the supply of foreign exchange into Nigeria.
In order to adjust for the decrease in
supply of foreign exchange, the naira depreciated
at the official window from N305/
$ to N360/$ and now hovers around N410/
$. With the decline in our foreign exchange
earnings and subsequent adjustments in the
value of the naira vis-à-vis the US dollar,
the CBN has continued to implement a demand
management framework, which is designed
to support improved production of
items that can be produced in Nigeria, and
further conservation of our external reserves.
Measures
These measures have helped to prevent a
significant decline in our reserves. Our external
reserves currently stand at over $35
billion and is sufficient to cover more than
7 months of import of goods and services,
even though the international rule of thumb
is for reserves to cover about 3 months of
imports. On inflation, we note that the general
price level in 2020 has responded to
several shocks including disruption to global
and domestic supply chains as a result
of COVID-19, energy price adjustments,
supply/logistic bottlenecks reflecting insecurity
in many parts of the country, the adjustments
in the exchange rate, which has
made imports more expensive. To this end,
headline Inflation rose from 12.26 percent
in March 2020 to 16.47 percent in January
2021. The rise in inflation along with the
need to implement growth enhancing measures
that would enable the Nigerian economy
to emerge from the recession, continues
to pose a dilemma for policy making
authorities. Research conducted by the CBN
notes that the rise in inflation has been due
to cost-push factors rather than demand pull
factors. As a result, the CBN has placed
greater weight on utilizing tools that would
address the shocks to economic growth,
while at the same time helping to provide
facilities that can reduce the cost-push factors
in inflation. Let me now turn to some of
these measures in greater detail.
Response by the Monetary and Fiscal Authorities
In response to the impact of COV-
ID-19 on key economic variables earlier
mentioned, 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,
Domestic
financial
conditions
have
remained
supportive to
growth, due
to measures
being
implemented
by the CBN
SMEs and businesses
that had been severely
affected by the pandemic,
as well as by the
lockdown measures.
Some of the measures
we took include: i. A
1-year extension of the
moratorium on principal
repayments for
CBN intervention facilities;
ii. Reduction
of the 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 households,
and the set-up of 39 isolation centers
across the country. vi. Strengthening of the
Loan to Deposit ratio policy, 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
and strengthen the capacity of our healthcare
institutions.
ix. Disbursements of over N476 bn out of
our 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.
Domestic financial conditions have remained
supportive to growth, due to measures
being implemented by the CBN. Aggregate
domestic credit grew by 17 percent
between January and December 2020, highlighting
the effects of the CBN’s intervention
programs, our LDR policy and accommodative
lending rates by the banks. Nonperforming
loan ratios have fallen from 6.5
percent in January 2020 to 6.0 percent as of
December 2020. In the equities market, the
Nigeria Stock Exchange has continued to
record positive performance, as the All-
Share Index increased from 20,098 in April
2020 to 40,270 by December 2020. The rise
in the index is due to positive sentiments
arising from improved earnings and output
by several listed corporates on the exchange.
These measures have helped to mitigate the
effects of the COVID-19 pandemic on the
economy.
As a result, Gross Domestic Product (GDP)
growth had a swift rebound in the 4th quarter
of 2020, as it expanded by 0.11 percent,
after two consecutive periods of negative
growth. The rebound in growth was driven
by Agriculture and ICT, as these sectors grew
by 3.42 percent and 14.7 percent, respectively
in the 4th quarter of 2020. Contraction
in the manufacturing sector declined
to 1.5 percent from 8.78 percent in the 2nd
Quarter of 2020. This result is similar to the
Manufacturing Purchasing Managers Index,
which stood at 49.6 points in December
2020, indicating a recovery in manufacturing
activities relative to a low of 43 points
in April 2020, even though it still remained
below the 50-point benchmark. In addition,
of the 46 economic activities tracked by
NBS, 31 of these activities expanded relative
to 13 activities in the 2nd quarter of
2020, reflecting continued improvements in
growth. Overall, in 2020, annual growth of
real GDP stood at –1.92 percent, relative to
the 2.27 percent growth recorded in 2019.
While the indicators above provide positive
signs that the economy is on a recovery path,
GDP growth at 0.11 percent indicates that
the economy still remains on a fragile recovery
path.
It is therefore imperative that we do all we
can in 2021 to ensure that we build on the
positive momentum and strengthen our efforts
at stimulating growth. Let me repeat,
with the discovery and deployment of vaccines,
2021 will be a year of massive global
recovery and Nigeria MUST not be left out.
In order to drive and sustain this recovery
therefore, we need to engage in the following
broad actions: 1)Sustain the accommodative
fiscal and monetary policy measures
aimed at improving access to finance to
households and businesses 2) Prevent a resurgence
in COVID-19 related cases 3) Ensure
that a significant number of our population
is properly vaccinated. 4)
Improving Foreign Exchange
inflows into the
country
Let me briefly elucidate on these points.
Accommodative Monetary Policy In 2021
it is imperative that the CBN continue to
provide accommodative monetary policy
measures that will enable faster recovery
of the economy, through improved flow of
credit to households and businesses in key
sectors of the economy such as Agriculture,
ICT and Manufacturing. These measures
are essential if we are return our
economy to a sustainable growth path,
while reducing our exposure to volatility
in commodity prices. While accommodative
monetary policy measures that will
support growth remain paramount in our
priorities for 2021, we would continue to
pay attention to trends in inflation, as
price stability is critical in guiding savings
and investment decisions by households
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