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Arrest The Drifting Economy Now

Economy recession
Posted: Jul 26, 2016 at 2:00 am   /   by   /   comments (0)

Last week, it was reported that the Nigerian Senate expressed worries over the state of the economy. The reaction by the upper chamber of the National Assembly, we believe, was not misplaced. The International Monetary Fund (IMF) had earlier drawn attention to the fact that the country’s economy was cascading in the direction of recession. The Fund in its latest World Economic Outlook (WEO) further downgraded its growth projections on the country’s economy to negative.The Fund’s latest outlook projects that the Nigerian economy would contract by about 4.1 per cent this year.

It further said the economy, which was initially projected to grow 1.1 per cent in 2017, is also projected to constrict by another 2.4 points in 2017.

Nigeria’s Gross Domestic Product (GDP) is expected to grow at -1.8 percent from the 2.7 percent projected in April, 2016, going by the latest outlook. According to IMF, the negative growth projection was inevitable as the economy adjusted to foreign currency shocks engendered by lower oil receipts, diminishing power generation and weak investor confidence.

With the new projection and outlook, Nigeria now features in the league comprising Russia and Brazil that were already at negative growth spurred by similar challenges.

The economy is in a bad shape; even the Central Bank of Nigeria (CBN) that is equipped to gauge and see what those outside the system hardly see has reportedly stated this in lucid language.

As if that was not enough, the situation was taken out of the realm of conjectures when the Finance Minister, Kemi Adeosun was quoted as affirming that the economy was technically in recession, when she appeared before the Senate tobrief the lawmakers on the monetary and fiscal policies adopted to respond to the unfavourable economic situation in the country and on the implementation of the 2016 budget.

The Minister of Finance said: “Things are tough, but we are not ignorant. I want to assure Nigerians the economy is in good hands and we are absolutely doing our best. We want to assure Nigeria we are on the right path; we are on the right track.”

We are surprised that so much energy is dissipated on the effort at the grim pictures painted by the IMF on the economy even when it is obvious that the economy is unhealthy and requires immediate attention. Our view on this is that all possible result-oriented policy response should urgently be deployed on multiple fronts to halt and reverse the ugly trend. Whether or not the economy is fully or technically in recession, we believe, remains a matter of semantics, and should not be allowed to drown the harsh reality of an economy in a parlous state, gasping for fresh breath of life.

Latest statistics released by the National Bureau of Statistics indicate that inflation rate in the country for the month of June was 16.5 per cent, the highest in 11 years. Also Minister of State for Petroleum Resources, Ibe Kachikwu, said recently that daily crude oil production capacity has dropped from an average of 2.1 million barrels in 2015 to about 1.9 million barrels.

The situation is worsened by the milieu of uncertainties in which the country’s monetary policy is enmeshed with harsh economic reality that has forced a depletion of the Naira value by as much as 44.17 per cent. One of the outcomes of the recently adopted floating exchange rate policy is that the market has witnessed the Naira exchange rate dropping from N197 to the dollar to an average of N284 to the dollar. The rate at the parallel market has also increased to an average of N375 to the dollar. The global oil market is still spooked by fears of both a crude and refined products glut, meaning that the worries are still far from over, even though there seems to be good signals by oil industry executives and analysts that the oil markets are indeed on the mend.

We are of the strong view that a quick, strategically focused response needs to be adopted to revive the economy, beyond disciplined spending of public fund. Perhaps, we also need to be a little more cost-effective rather than being unnecessarily cost conscious in our spending strategy. All said, the time to act is now.

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