The Muhammadu Buhari administration has been facing an uphill task on many fronts since it came to power 26 months ago. It has been criticised for its perceived dismal record of performance on the fulfillment of its campaign promises. The economy, which has been defined by a debilitating recession and a crash in the value of the naira, has posed the toughest challenge to the government.
The economy is in recession for the first time in more than two decades, having experienced more than three consecutive quarters of sluggish growth. Experts say this is a reflection of adverse economic shocks, inconsistent economic policies and security problems in the Northeast and Niger Delta region, which dragged down production of oil, Nigeria’s main revenue earner.
Cuts in oil production below the estimated budgetary benchmark of 2.2 million barrels per day (mbpd) and the fall in prices in the international oil market made Nigeria vulnerable, as they abruptly crashed growth. Consequently, the economy contracted 1.7 percent in 2016. Inflation rate hovered between 16 and 18 percent, a record high in over two decades, far above the Central Bank’s six to nine percent target. Prices of essential commodities went beyond the reach of many, even as unemployment soared.
It is against this background that the 2017 economic outlook indicated slow economic recovery and 2.2 percent growth, with a N7.44 trillion budget. The budget, government said, would jumpstart growth by ramping up infrastructure spending through borrowing from home and abroad. It also had other policies to address the various macroeconomic challenges and structural imbalances.
Also, within the first quarter (1Q) of 2017, the administration unveiled an Economic Recovery and Growth Plan (ERGP) with focus on five key areas. These are: improving macroeconomic stability, economic growth and diversification, improving competitiveness, fostering social inclusion, and governance and security. Already, the administration says some key reforms in the plan have been rolled out. These include the conditional cash transfer initiative targeted at the poorest and most vulnerable population, improving capital budget execution and strengthening public financial management at both federal and state levels.
Altogether, an appraisal of the first half of 2017 indicates that the economy is turning a corner, even though growth is slow due to fluctuations in oil production year-on-year (yoy) and the fall in oil prices. The good news is that the earlier pressure which pushed the economy into contraction is easing off. The naira, which earlier in the year exchanged at N529/$ is now N366/$.
The latest statistics from the National Bureau of Statistics (NBS) for the month of May show that the economy contracted 0.5 percent, against 1.7 percent in 4Q of 2016. The May result was said to have been buoyed by strong growth in new oil orders and output, with the latter expanding at the fastest rate in almost two years.
This is supported by last week’s figures from the Ministry of Petroleum Resources which showed that, for the first time in many years, Nigeria’s crude oil production, including condensate, hit 2.025mbpd for the month of June, 2017. The implication is that, at the current oil price of $48 per barrel, output and production will improve government finances.
Also in May, consumer prices rose 1.88 percent, up from the April figure of 1.60 percent. Inflation rate went down 16.3 percent, from 17.2 percent in April, marking the 4th consecutive decline. However, the inflation rate is still far above the CBN’s six to nine percent target range. Also, the Purchasing Managers’ Index (PMI), which is an economic indicator that measures expansion and contraction, rose from 53.6 percent in April to 54.4 percent in May 2017. This is the highest reading in 17 months, a positive sign that the economy is on the way to recovery, even if not yet out of recession.
While these are positive developments for the government, the quest to exit recession is still work-in-progress. These positive economic indices are yet to reflect on the welfare of the people. Prices of food items may not be as high as they were last year, but they are still largely beyond the means of the vast majority of citizens. Nigerians are also yet to see the 1.5 million jobs promised by the government in the first half of the year.
Overall, government should intensify its efforts on the economy and ensure faithful implementation of the budget. For many years now, the rate of budget implementation has been lower than 50 percent. This is not enough to stimulate real growth. There is also urgent need to open up other sectors that have potentials to attract and retain large investments, such as rail transportation, solid minerals, agriculture and energy. Nigeria’s nominal Gross Domestic Product (GDP) needs to increase beyond the N101trn recorded in 2016.
We reiterate the need for the CBN to reduce the lending rate, which has remained unchanged for almost a year now. The inflation rate should also be brought down.
The MPR, at 14 percent, will not spur economic activities in the country. We are not persuaded by the CBN’s argument that the current high lending rate is necessary to avoid high rate of inflation. With the next Monetary Policy Committee (MPC) meeting scheduled for July 24-25, let the monetary authorities work towards a single digit lending rate. It is necessary to ease the current tough economic environment in the country. That is one sure way to ensure progress and deliver positive change to longsuffering Nigerians in the remaining part of the year.