N3.5trn Stimulus Package Not Enough To Take Nigeria Out Of Recession-Chukwu 

The Chief Executive Officer of Cowry Assets Management, Johnson Chukwu has said that the N3.5trn fiscal stimulus rolled out by the Federal Government during the wake of the coronavirus pandemic to salvage the Nigerian economy may not be enough to take the country out of recession.

Chukwu said this on TVC News Business Nigeria, ahead of the Central Bank of Nigeria Monetary Policy Meeting on Tuesday.

Nigeria fell into a second recession in four years with Gross Domestic Product sliding to 6.10 per cent in the second quarter and 3.62 per cent in the third and second quarter of 2020. The recession was induced by the Covid-19 pandemic.

Due to foreign exchange liquidity pressure, inflation rose to 15.75 per cent in December last year, from 14.89 per cent and 14.23 per cent recorded in November and October respectively.

The Monetary Policy Committee of the Central Bank of Nigeria last year unexpectedly cut its interest- rate to 11.5 per cent to boost lending and stimulate consumer spending.

The apex bank had argued that monetary tightening would threaten the real sector of Africa’s largest economy.

The CBN had injected a combined N3.5trn stimulus targeted at reviving the economy and providing succor to those sectors and households badly hit by the pandemic.

The CBN had said, “We are strengthening the Nigerian economy by providing a combined stimulus package of about N3.5trn in targeted measures to households, businesses, manufacturers and healthcare providers.”

The CBN had allocated N100bn to the country’s pharmaceutical industry, N1trn for the critical industrial sectors and N15bn for the household and Small and Medium Enterprises.

“Clearly they (CBN) have a contradictory factor they have to balance,” Chukwu said on the MPC decision.

The analyst said the country’s multiple exchange rate and the pressure on the naira was a threat to the country’s foreign portfolio investors.

“You know Nigeria has not met the demand of foreign portfolio investors who wanted to exit the market or sold their instruments and wanted to convert back to dollar. We also know that the inflationary pressure is still persisting.

“We are dealing with an economy that is in a recession which requires stimulus. We saw the economy grow by 1.87 per cent in the first quarter of last year, only to contract by 6.1 per cent in the second quarter and contract further by 3.62 per cent in the third quarter.

“There are indications that the economy requires stimulus. So at the same time you are dealing with an economy that is in contraction and requires stimulus, you are dealing with an economy where price level is increasing on daily bases. We are dealing with inflation rates as high as 15.75 per cent and we are also dealing to contain foreign exchange pressure.”

He said the CBN needs to balance between the need to continue to stimulate the economy so that the country could exit recession, with the need to moderate the current rate of inflation and also to tamper with the current pressure on FX.

Chukwu said with the planned distribution of vaccines, the apex bank would roll back its unconventional monetary policy which it had deployed to tackle the monetary needs of Nigeria.