CBN Predicts Mixed Economic Growth In 2016/2017 | Independent Newspapers Limited
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CBN Predicts Mixed Economic Growth In 2016/2017

CBN Resists Political Pressure, Retains Rates
Posted: Jun 27, 2016 at 7:23 pm   /   by   /   comments (0)

*Says Economy To Be Driven By Non-Oil Sector



The Central Bank of Nigeria (CBN) said the outlook for the domestic economy in 2016/2017 would be mixed, given the sluggish global output growth outlook, which is expected to slow the demand for Nigeria’s exports.

Nigeria’s economic growth for the period is projected to be driven mainly by the non-oil sector.

The CBN in the framework released on Monday said government efforts to spur growth in the manufacturing and agricultural sectors are expected to contribute to improved economic performance in the 2016/2017 but this would be tapered by resource constraint.

Specifically, the apex bank said: “The power sector, tax and import duty reforms are expected to support agricultural and manufacturing value chains, and subdue demand-linked inflationary pressures. Downside risks to the growth outlook are security challenges, low demand for Nigeria’s exports due to the crawling global economic growth, and the sovereign debt crisis in the euro area.”

The agricultural sector is expected to drive growth in the medium term through increased activities and attainment of self-sufficiency in agricultural production. This is hinged on sustained implementation of appropriate policies, incentives and programmes, favourable climatic conditions, local demand for agricultural produce and increased private sector investment. These would boost agricultural production and moderate inflationary pressures.

On inflation, the apex bank believes that it is expected to remain largely stable, as appropriate policy measures continue in 2016/2017. However, demand pressure at the foreign exchange market, high liquidity surfeit, low agricultural output growth and lingering fuel scarcity constitute downside risks to domestic price developments in 2016.

While recovery in the advanced economies is expected to improve the demand for Nigeria’s exports, the bank said the demand for Nigeria’s crude oil is projected to remain weak in 2016/2017, owing largely to gas and shale oil exploitation in the US, which has reduced Nigeria’s crude oil exports to that country.

On the supply side, oil production capacity growth is expected to rise on the assumption that the Petroleum Industry Bill (PIB) is signed into law. This legislation is expected to stimulate investment in the upstream and mid-stream of the oil industry.

However, with the renewed anti-corruption campaign, reduction of leakages in government revenues, fiscal consolidation including the operationalisation of the Treasury Single Account (TSA), among others, the bank posited that the Nigerian economy looks fairly promising in 2016, saying that there are prospects for improvement in non-oil tax revenue predicated on expanded tax/revenue base and the efficient collection machinery which will have significant effect on the economy.

The power sector reform, culminating in the privatisation of the Power Holding Company of Nigeria (PHCN), is expected to improve efficiency in power generation and distribution, thereby reducing the cost of doing business. This should lead to expansion in production, increased lending, investment growth, employment generation and poverty reduction. In addition, current efforts at improving transport network would enhance economic activities.

On the monetary policy outlook for the period under consideration, the bank said that the primary objective of monetary policy in 2016/2017 remains the maintenance of price stability. Integral in this is the sustenance of financial system stability.

“In this regard, the CBN will be committed to achieving the inflation objective of 6.0 to 9.0 percent during the period through effective liquidity management. The aim is to create an environment characterized by low inflation and interest rates that is conducive for inclusive and sustainable growth. The bank shall continue to take necessary steps to ensure banking system soundness and overall financial system stability as well as enhance the efficiency of the payments system to create a favourable platform for the conduct of monetary policy. The bank remains resolute in achieving credible financial markets through effective enforcement of financial market rules.”

Monetary targeting framework will remain the CBN’s nominal anchor in 2016/2017. This will be complemented by an appropriate exchange rate regime. In that regard, the growth in broad money will be closely monitored, with projections of 10.98 and 10.29 per cent in 2016 and 2017, respectively.

To ensure that the monetary aggregates are within the programmed targets, the monetary policy stance will be proactive, involving the discretionary management of the bank’s balance sheet. The monetary policy rate (MPR) will continue to be the anchor rate for short-term interest rates while the Monetary Policy Committee (MPC) will regularly review the rate in response to prevailing liquidity conditions and other developments in the economy.