CBN paints gloomy first quarter outlook for Nigeria’s economy
A member of the central bank monetary policy committee, ADAMU, EDWARD LAMETEK, has issued a gloomy economic outlook for the first quarter of 2023 pointing out several headwinds that await the Nigerian economy. He also did not hold back in rebuke of how the government has been handling fiscal policies.
Lamtek made this remark in his personal statements as contained in the monetary policy communique for the meeting held on 22nd of November 2022. His remarks transversed the outlook for inflation, exchange rate, oil revenues, fiscal policies, and insecurity.
He also made recommendations which he opined have to be implemented to avoid a potential bad start for the economy come 2023.
On prices and inflation – He pointed out that we are yet to see the effect of large-scale flooding which occurred in many parts of the country around October. According to him, the impact of the floods will be mostly felt in the last quarter of 2023 and the first quarter of 2023. More specifically, the impact will be felt on GDP output and inflation.
“The large-scale flooding that swept through the country in October will have adverse consequences for food supply, and output growth in 2022Q4 and part of 2023Q1. This may drag down overall GDP growth for 2022 from level projected. Inflation expectations in November 2022 was 19.93%, lower than projected inflation of 21.29%. However, the December festivities may drive up inflation expectations again. Petrol queues in some parts of the country are also likely to impact on output growth and inflation.”
On exchange rate: He recommended that the apex bank review its current fx policy by channeling sales to those who are qualified to “benefit” also citing the need to boost fx supplies.
“There is a need to address the pressures on the naira exchange rate by boosting supply of foreign exchange in the economy. I am also of the opinion that the FX sold by the Bank at the I&E windows should be for productive activities alone. The Bank should review its policy of those who qualify to benefit from FX sold in the official market.”
“The MPC needs to sustain the tight monetary policy stance to dampen inflationary pressures and moderate negative real interest rate on long term securities to encourage capital inflows.”
On the oil sector – He posits that Nigeria should be concerned about the negative GDP currently being experienced in the oil sector. The latest data from the NBS states oil sector GDP contracted by 22% in the third quarter of 2022. The oil sector has also contracted since the second quarter of 2020.
“The country should not normalize the negative contributions of the oil sector to economic growth. The oil sector has so much potential to contribute to economic growth, generate employment and increase FX flow into the economy. The government must be deliberate in removing all the encumbrances to oil sector performance and implement the PIA in full.”
On fiscal policies – Lamtek also scathingly chided the government for its handling of Fiscal policies accusing it of relying on the central bank to fund its fiscal deficits at a detrimental cost to the economy.
“The worsening fiscal balances should also be addressed. Most indicators of fiscal balances are in the red. The reliance on monetary accommodation to enhance fiscal operations is costly to the economy both in the medium and long term. The revenue challenges of the government should be confronted headlong. The Bank should moderate further financing of the federal government and conclude on the securitization of the FGN exposure to the CBN. In addition, the issue of oil theft and vandalization of pipelines and other government assets must be urgently addressed.”
On Insecurity – Lamtek also addressed the security situation in the country as well as flooding which according to him contribute to the country’s high inflationary environment.
“Finally, the government must sustain current military successes against insurgents and bandits. Government at all levels must also begin to seriously address the problem of climate change to prevent the scale and impacts of future incidence of flooding, desertification, and loss of lives and properties. Timely removal of fuel subsidy and full liberalization of the downstream petroleum sector will address part of the current fiscal challenges, eliminate shortage of refined petroleum products, and drive investment into the sector.”
About Adamu Lamtek – Edward Lametek Adamu is the Deputy Governor of the Central Bank of Nigeria, the country’s central bank. He is a quantity surveyor, business consultant, and leadership strategist.
