Yemisi Izuora
The Central Bank of Nigeria, CBN, has blamed the plunge in foreign exchange supply to low earnings from the sale of crude oil forcing the Naira to depreciate by 7.7 per cent from N380/$ to 410/$ at the I & E window.
According to the Bank, supply was also affected by massive outflow of foreign portfolio investments from Emerging and Frontier Markets including Nigeria in 2020. Consequently, a combination of these factors led to a marked drop in the country’s foreign reserves from nearly $36.7bn at the beginning of the crises in March 2020, to a low of $32.9bn in June 2021.
Equally, the volume of activities at the I&E window fell from nearly $250 – 300 million daily to less than $40 million in the first quarter of 2021.
Governor of the Bank, Godwin Emefiele, while addressing the 56th edition of the Annual Bankers Dinner in Lagos, Friday November 26, in Lagos, said the country’s economy has been negatively impacted by the COVID-19 pandemic, even though efforts have been firmed up to shape developments in the economy over the past year.
Emefiele, noted that given the country’s reliance on revenues from the export of commodities, such as crude oil, the fall in crude oil prices from a high of $68 per barrel in January 2020 to $24 per barrel in April 2020 had adverse implications on the supply of foreign exchange into the country, as well as on government revenues. While oil prices have risen to close to $80 today, OPEC restrictions on Nigeria’s production output along with the rising cost of petroleum imports have prevented government from being able to harness the gains from the rise in crude oil prices.
Speaking on supply disruptions and inflation, the Governor stated the imposition of containment measures as well as the rising cost of imported goods due to supply disruptions aggravated inflationary pressures in the 2nd half of 2020.
According to him, Our inflation rate rose from 12.12 percent in January 2020 to 18.17 percent in March 2021. Part of the rise in inflation was due to the surge in demand that arose from the easing of restrictions on movements, which led to a growing disparity between demand orders and output from factories and farms, not only in Nigeria but in other parts of the world. Heightened demand along with adjustments in the exchange rate, farmer herder clashes, imported inflation, insecurity in parts of the food belt region, and rising transportation cost, were some of the other key factors that drove the rise in inflation.
Consequently, the pandemic and its attendant effects re-ordered the paths of the country’s key macroeconomic and financial indicators after the gains achieved following the impact of the 2015 – 2017 oil price crisis, he said adding, “As a result of these effects the Nigerian economy fell into a second recession in four years, in the 3rd quarter of 2020.”
However, he noted that the banking sector remained robust and sound due to prompt response by the Bank in order to prevent an economic crisis from spilling over into a financial crisis. “As result, the banking sector continued to consolidate on the gains of the recovery from the 2016 & 2017 recession. Although we saw some fragilities in the system, they constituted limited risks. Prudential indicators such as NPLs stood at 5.4 percent in November 2021, while the CAR remained above 15 percent indicating continued resilience of our banking system.”
Emefiele, said the impact of the COVID-19 pandemic provided many lessons that has helped to shape subsequent actions by the Monetary Policy authorities.
The nation, he said realized how vulnerable the economy was relative to advanced markets in not only access to essential medical supplies, but in the form of monetary policy support that Central Banks in developing countries could provide in supporting the recovery of their respective economies.
“Rather than let the crisis compound our problems, we reflected on ways in which we could turn the crisis into an opportunity. One that would reset the trajectory of our economy from its dependence on imported items to one that is more resilient and productive.” Emefiele said.
With the pace at which viruses spread, which could significantly derail economic growth, the Bank was further emboldened to work on measures that would improve productivity, support employment generation and strengthen the resilience of our economy to external shocks, he stated.
“As a result, working with the fiscal authorities, we took unprecedented measures to contain the effects of the pandemic on our economy, in addition to other efforts aimed at stimulating greater economic activity in key sectors of our economy. Please permit me to highlight some of the steps we took towards achieving our mandated goals.” he said.
Speaking on efforts to contain the pandemic, the Governor said the Bank, worked with the fiscal authorities in instituting strong policy support measures capped under the Economic Sustainability Plan (ESP), which was designed to contain the effects of the pandemic, restore stability to the economy by helping households and businesses affected by the pandemic and to lift our economy out of the woods through massive interventions to critical sectors.
Under this plan, the monetary and fiscal authorities collectively mobilized and injected over N5trillion to support households and businesses.
He said the Bank deployed more than N3.5trillion, – about 4.1 per cent of Nigeria’s GDP to critical sectors such as agriculture, manufacturing, electricity, and healthcare in order to stimulate and help the economy recover from the deep shock.
He listed other measures to include reduction of the monetary policy rate from 13.5 to 11.5 percent to improve the flow of credit to households and businesses, reduction of the interest rate on CBN intervention loans from 9 to 5 percent and extension of the moratorium on principal repayments for CBN intervention facility to March 2022.
Others are granting of regulatory forbearance that allow banks restructure loans given to sectors severely affected by the pandemic, strengthening of the Loan to Deposit ratio policy, which has resulted in a significant rise in loans provided by financial institutions. Total gross credit rose by over 21.1 percent over the past year, from N19.4 trillion to N23.5 trillion, creation of a N50 billion target credit facility for affected households and small and medium enterprises through the Nirsal Microfinance Bank, against which N363.5 billion has been disbursed to over 767,000 Nigerian households and micro businesses and mobilization of key stakeholders in the Nigerian economy, under the Private Sector Coalition Against COVID-19 (CACOVID) team that raised N39.646 to support the fight against the scourge.
The funds were used to support three (3) key priority areas:(i) development of 39 fully equipped isolation centres including Intensive Care Units (ICUs) and molecular testing labs and procurement of medical equipment such as PCR test kits across the country; (ii) provision of palliatives in the form of essential food items to 1.7 million households, an equivalent of 8 million Nigerians; and (iii) improving awareness in rural awareness on the COVID-19 virus and capacity building for community health workers.
The rest are creation, of a N1 trillion facility in loans to boost local manufacturing and production across critical sectors; of which 53 major manufacturing projects, 21 agriculture related projects and 13 service projects are being funded from this facility, creation of a NGN100 billion intervention fund for pharmaceutical companies and healthcare practitioners to expand and strengthen the capacity of our healthcare institutions.
It also increased this fund to N200 billion to accommodate more players in the healthcare sector, such as phytomedicine practitioners and manufacturers of medical devices and vaccines with primary focus on creating a hub where medical officers can have access to diagnostic equipment to carry out quality medical services at an affordable price for Nigerians.
So far, over N107.7 billion has been released to support 114 healthcare projects, including six (6) greenfield (new) and 108 are expansionary (brownfield). The projects financed included cancer treatment centres, medical diagnostics, pharmaceuticals, dental services, eye clinics, and other healthcare service providers. We are happy to inform you that the intervention programs have contributed to the increased bed space in our hospitals, and improved healthcare productivity as evident in the increased number of successfully treated Covid 19 patients.
These developmental initiatives combined with its monetary and financial policies have helped to support the recovery of the economy and in re-aligning general macroeconomic conditions, he explained.
