By Ben Igbokwe
Despite the prevailing economic crisis and dwindling financial stability pervading the entire globe due to the aftermath of the covid-19 pandemic and the Russian war on Ukraine whose end are still far from near, Mr. Godwin Emefiele, Governor of Central Bank of Nigeria (CBN), is full of hope and optimism that the Nigerian economy has the potentials to emerge better and stronger in 2023.
Mr. Emefile gave the assurance while delivering his Keynote Address with the theme: “Radical Responses to Abnormal Episodes: Time for Innovative Decision-Making”, at the 57th Annual Bankers Dinner organized by the Chartered Institute of Bankers of Nigeria (CIBN), where he presented a holistic appraisal of both the global and domestic economies while projecting the outlook for 2023 and beyond, at Eko Hotel & Suites, Lagos, recently.
The apex bank regulatory boss acknowledged that the world including Nigeria had witnessed unprecedented social and macroeconomic challenges in the past few years which he blamed on the global pandemic and Russian war on Ukraine. “The last few years cannot, by any stretch of imagination be described as normal following the series of headwinds that has resulted in a downward revision of the global growth outlook for 2022 and 2023 by the IMF”, he said. Adding that the effect of the pandemic contracted global GDP by about 3.1 percent in 2020 while the commodity prices went into a state of turmoil as the price of crude oil plunged by over 70 percent.
Emefile observed that this resulted in a significant outflow of funds from emerging market and developing economies like Nigeria, as investors sought safe haven assets like US treasury bills. “This aggravated financial conditions in developing markets, leading to the depletion of external reserves and the weakening of the currencies of a significant number of emerging market countries including Nigeria”.
He noted that unprecedented measure which involved significant amount of fiscal and monetary stimulus were taken by global leaders and institutions to contain the effect of the pandemic which consequently resulted to a swift rebound in global growth in 2021. “However, the swift rebound is now being constrained by the significant supply disruptions in key producing nations like China, as factories now struggle to meet the upsurge in global demand, along with other bottlenecks such as inadequate ships and containers to convey goods. This has resulted in a hike in freight rates from key producing nations like China and ultimately an uptick in imported inflation”, Emefile, explained.
The CBN Boss said that as the world struggled to recover to pre-pandemic conditions, the global economy was yet again hit by another adverse occurrence with the eruption of the Russian-Ukraine war. Adding that the war along with the sanctions placed on Russia by the US and its allies led to a spike in crude oil prices. Given the dominant role Russia plays as a key energy producer, energy prices spiked to over $120/barrel in March 2022 from a low of $14/barrel in April 2020. In addition, Russia, and Ukraine’s control of a significant share of wheat and fertilizer in the global market aggravated food prices.
He explained that advanced economies including the US, in a bid to contain the rising inflation began to increase their policy rates, which led to a tightening of global financial Market conditions along with a significant outflow of funds from emerging markets countries and the subsequent strengthening of the US dollar further aggravated inflationary pressures, along with a weakening of currencies, and depletion of external reserves in many emerging market countries. “Today close to 80 percent of countries have reported heightened inflationary pressures due to a confluence of some of the factors mentioned above”.
According to Emefiele, Central Banks in emerging markets and developing economies in a bid to contain rising inflation were also compelled to raise rates, which is expected to lead to a tapering of global growth over the next year. In fact, the short-term global growth projections by the IMF have been downgraded three times in 2022 and is likely to be below the 3.2 percent and 2.7 percent estimates for 2022 and 2023, respectively.
He said “average growth among advanced economies is projected to plunge from 5.2 percent in 2021 to 2.4 percent in 2022 and 1.1 percent in 2023. Estimated output growth in emerging markets, is expected to slow from 6.6 percent in 2021 to 3.7 percent apiece in 2022 and 2023”.
“Today, in view of the food, energy, and cost-of-living crises in many countries, we are witnessing growing restrictions on food exports from many countries. As at the last count, about 23 countries, mainly in advanced economies, according to the World Bank have banned the export of 33 food items. Seven other countries have additionally implemented various measures to limit food exports”, he explained.
The CBN Governor stressed that these tumultuous external conditions, reinforced by the anomalous, sometimes Chaotic responses by many countries, forebodes spill over shocks for Nigeria. “This underscores my chosen theme and the need to ingeniously think outside the box for solutions and countervailing measures”, he said.
Emefiele who used the pathetic story of a young poor but beautiful chinese girl called Mei to illustrate Nigeria’s fundamental vulnerabilities, stated that it was imperative to find sustainable ways of insulating the economy from continued exogenous challenges, saying that the relentless waves of abnormal shocks that is battering the global economy, domestic conditions are exposed to spill overs from the impulsive reactions in some key economies. “It therefore behoves us to adequately identify and understand the likely implications of these undercurrents on the Nigerian economy”. He warned that the Nigerian economy was not insulated from the spill over effects of these shocks despite the fact that some of the actions taken by the monetary and fiscal authorities helped to cushion its effects on our economy. “Based on this, the economy has remained resilient in the face of enormous vulnerability”.
Emefile observed that the Nigerian economy recorded eight consecutive quarters of positive output with domestic growth rates improving from negative 1.92 percent in 2020 to 3.40 percent in 2021 and further to 3.54 percent as at 2022q2.
He said the non-oil sector witnessed a continued growth since 2020q4, recovering from negative 1.25 percent in 2020 to 4.77 percent in 2022q2 which reflects the impact of policy supports to household, MSMEs and other high-impact economic sectors through various CBN interventions. Noting that while the agriculture and services sectors continue to strengthen and propel domestic growth rate throughout the period the oil sector has continued to flounder with growth rate plunging to negative 11.77 percent in 2022q2.
Emefiele stressed that the CBN pursued a balanced mix of established and unconventional policy measures and strategies to manage the nation’s macroeconomic challenges as well as to forestall any harmful future impact. The measures include raising of MPC policy rate four times from 11.5 percent to 16.5 percent in November, 2022; CBN in conjunction with the Bankers Committee initiated the RT200 programme to effectively manage the worsening mismatch between foreign exchange market demand and supply and boost foreign exchange earnings, Naira-For Dollar initiative, the recent re-design of the naira bank notes, eNaira among other strategic initiatives.
According to Emefiele, “the short-term outlook of the global economy is increasingly bleak as the lingering effects of the pandemic-induced supply chain disruptions and economic fragmentation is worsened by the uncertainties triggered by the eruption of the Russian-Ukraine war”.
He said “the IMF projects that more than a third of the global economies will suffer a recession within the next two years, especially as the US, EU and Chinese economies stagnate. In emerging markets, growth forecasts have been revised downward for China, India, Mexico, Turkey, and South Africa reflecting country-specific factors, uncertainties in the financial conditions, and rising spillover effects of global geopolitical tensions”.
According to Emefiele, “as external conditions flounders, inflationary pressure is expected to worsen and become more persistent in many economies”. He projected that the rate in key advanced economies would remain historically elevated at double digit levels up to the 2023q3 at the earliest and tight monetary conditions would also remain prevalent over the short-term, straining financial markets in many EMDEs and exacerbating the underlying vulnerabilities.
Despite all this, Emefiele expressed hope and optimism that Nigeria would fare well in 2023 regardless. “Considering the current developments in both the global and domestic economies, and based on extensive simulations, the CBN is of the view that the short-term outlook of the Nigerian economy remains good”
He assured that the apex bank monetary policy would remain focused on the objectives of price, monetary, and exchange rate stability, balanced, judicious, research driven, adequate and supportive of the real economy and will act to appropriately adjust the policy rate in line with unfolding conditions and outlooks in the coming years.
He projected that the GDP growth rate would remain positive in the remaining quarter of 2022 and during 2023 adding that the performance of the non-oil sector would be buoyed by the continued efforts at entrenching indigenous productivity in high-impact real sector activities, especially agriculture, MSMEs, and manufacturing. He said domestic aggregate demand would further be bolstered by the anticipated budgetary outlay and the surge of electioneering spending in the next few months.
He posited that from 3.54 percent in quarter two of 2022, growth is projected to reach 3.7 percent in quarter three and 3.47 by the fourth quarter. For the rest of 2022 and towards mid-2023 Nigeria’s rate of inflation is projected to remain elevated and above the 12.5 percent growth-aiding threshold. “our inhouse model-based simulations indicate that inflation rate could fall steadily to less than 15 percent by end-2023”, he stated.
Emefiele also assured that the CBN is determined to maintain its stable exchange policy stance over the next few months through innovative policy measures to manage the demand and supply of foreign exchange despite the pressure expected from the forthcoming elections and other factors while expecting the balance of payment (BOP) to remain positive.
“Given the global and domestic headwinds we face as a nation, and the volatility in the global environment, we have no other option, as leaders interested in the progress of our nation, but to work very hard to spur job creation by reviving agricultural and industrial activities in the country, said the CBN Boss.
On the other hand, Dr. Ken Opara, President/Chairman of Council The Chartered Institute of Bankers of Nigeria commended the CBN Governor for all the strategic initiatives and monetary policies including the redesigning of the Naira banknotes, eNaira, and over 37 intervention programmes of the Bank aimed at sustaining the growth and development of the Nigerian economy.