Nigerian Recession Is Imminent, Central Bank Governor Says

  • Delay in signing 2016 budget caused distortions in economy
  • Policy makers left key lending rate unchanged at 12%

Nigeria’s economy will probably slip into a recession after a four-month delay in the nation’s budget stalled economic stimulus programs, central bank Governor Godwin Emefiele said.

A “recession, which we signaled in July 2015, now appears imminent,” Emefiele told reporters in the capital, Abuja, on Tuesday. “Even after the delayed budgetary passage in May 2016, the initial monetary injection approved by the federal government may not impact the economy soon.”

Emefiele spoke after the Central Bank of Nigeria left its benchmark interest rate at 12 percent. While inflation accelerated to an almost six-year high of 13.7 percent in April, the economy of Africa’s biggest crude producer contracted in the three months through March for the first time in more than a decade as oil output slumped.

“The CBN has chosen to focus more on growth rather than price stability,” Ayodeji Ebo, head of research at Afrinvest West Africa Ltd., said by phone from Lagos. “To avoid the economy going into recession it felt it has to hold” the monetary policy rate, he said.

President Muhammadu Buhari signed the 2016 budget into law earlier this month, causing delays in plans to boost the economy and borrow to bridge the nation’s fiscal shortfall. The budget was postponed after politicians alleged in January that the document contained several mistakes and discrepancies.

Emefiele, who also announced plans to introduce more flexibility in the foreign-exchange market, something which Buhari has resisted, said the budget delay has caused distortions in the system. 

“One aspect that is largely contributing to the situation we find ourselves today is the delay in the passage of the budget,” Emefiele said. “You can imagine a situation where a budget is passed in May when it should have been passed in January, or even latest February.”

The central bank said rising price pressure in the economy is due to fuel shortages, exchange-rate pass through from imported goods, the cost of electricity and transport, a reduction in food output and high input costs for industrial production.

The partial liberalization of Nigeria’s foreign-exchange regime will probably result in a short-term spike in inflation, Malte Liewerscheidt, senior Africa analyst at Bath, England-based risk consultancy Verisk Maplecroft, said in e-mailed comments. That will be moderated by the many importers who already source foreign exchange at a premium of about 60 percent on the parallel market, he said.

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