Cosmas Ekpunobi And Erasmus Alaneme
12 December 2008
Abuja — THE Senate and the Central Bank of Nigeria (CBN), yesterday raised alarm over frightening aspects of the nation's dwindling economy, particularly the threat to the 2009 budget.
While the Senate was concerned with the continued depreciation of the naira, the CBN was worried over the continued slide in oil prices.
Senate yesterday, also summoned the Finance Minister, Dr Shamsudeen Usman , CBN governor, Prof. Chukwuma Soludo, and the Adviser to the President on Economic Matters, Tanimu Yakubu, over the continued depreciation of the Naira which they said had become a threat to the 2009 budget.
Soludo, Shamsudeen and Yakubu are expected to appear before the Senate next Tuesday to explain the continued slide in naira and what government is doing to shield the economy form the global economic crisis.
Decision to invite them followed a motion by the Deputy Senate President Ike Ekweremadu, and 23 others drawing the attention of the senators to the continued depreciation of the Naira.
The CBN boss, the finance minister and the economic adviser had during their earlier briefing to the Senate on the global economic crisis insisted that there was no cause for alarm
But senators yesterday insisted that the economy was no longer safe and that government should take more practical steps now to protect it from danger.
Ekweremadu in his lead debate, said Naira had depreciated in the last four weeks at a much faster rate than it had appreciated over the last two years.
He said the cause of this depreciation was the consequence of the negative cash flow as a result of downward trend in oil price and further worsened by speculation in the foreign exchange market.
CBN on its part, disclosed that the nation's foreign reserve as at Wednesday, December 10, 2008, stood at $58.11billion, but expressed concern over the effect of the continuing slide in oil prices on the domestic economy.
Prof. Soludo, who presented the 59th communiqué of the Monetary Policy Committee (MPC) also explained that the challenges facing the Nigerian economy are in respect of developments in the international oil market encompassing both slack demand from advanced economies and declining oil prices.
Soludo said: "If the current trend continues, Nigeria's fiscal and external payments positions are likely to be further weakened in 2009."
However he said the domestic non-oil sector will rise to the challenge to offset to some extent the slack from external sector.
The communiqué read in part: "The committee noted the continued weakening of the global economy despite the coordinated response by the fiscal authorities and central banks to the global financial crisis and the ensuing economic downturn. Specifically, global unemployment has been on the rise, shortage of liquidity and acute scarcity of credit have remained visible in the financial institutions, while stock market developments have been marked by a high degree of fluctuation and corporations have continued to post financial losses.
"With falling demand by developed economies, the international crude oil and other commodity prices have declined sharply during the preceding three months. Inflation, however, appeared to have moderated slightly in most developed economies and some emerging market economies.
"Inflation rose further in October contrary to the seasonal pattern, while the Naira exchange rate depreciated in all segments of the foreign exchange market since November. In addition, key interest rates rose during the review period after some moderation in September through October following the implementation of the decisions taken at the special meeting of the committee.
"The MPC also expressed concern on the potential negative impact of the rapidly declining oil prices on the fiscal operations of the three tiers of government and the overall economy. Against this background, therefore, the overall macroeconomic outlook remains challenging," he stated.
Speaking on key macroeconomic development, Soludo said that Inflation rose in October to 14.7 per cent from 13.0 per cent in September 2008 which is counter seasonal and driven by both food and non-food components.
Similarly, core inflation rose to 7.9 per cent in October from 6.9 per cent in September. Staff projections indicate that the year-on-year headline inflation is not likely to moderate significantly in the remaining months of 2008, the CBN Boss said.
On output, he said that "aggregate output growth in the third quarter was estimated at 6.83 per cent compared with 5.23 per cent in the second quarter. The growth was driven largely by the non-oil sector, which grew by an estimated 9.16 per cent. However, output of the oil sector declined by 0.81 per cent.
"Current National Bureau of Statistics (NBS) estimate of real GDP growth for the fourth quarter of 2008 is 8.69 per cent, while the overall output growth for 2008 is estimated at 6.77 per cent compared with 6.40 per cent in 2007.
"Provisional data showed that growth in broad money (M2) moderated in October 2008. M2, which grew by 43.5 per cent, as at end-October, 2008 which when annualized translates to 52.2 per cent. The growth in M2 has continued to be driven mainly by credit to the core private sector, which grew by 52.5 per cent (or 63.0 per cent annualized) as at end of October, 2008.
"Key interest rates moderated in late September through October following the implementation of the decisions of the Special MPC meeting held on September 18, 2008. The rates rose in early November but have since moderated.
"The sustained stability that has characterized the foreign exchange market in the last 24 months appeared to have come under threat since November 2008 largely due to the global economic and financial developments. The demand for foreign exchange at the WDAS has risen sharply since October as private inflows have shrunk and oil prices softened at the international market.
"The committee noted with satisfaction that Nigerian banks were largely robust enough to withstand the effects of the financial turmoil. Whereas many banks abroad have been making loses and faced with potential bankruptcies, Nigerian banks have in fact been posting profits. Nonetheless, there is in general a welcome recognition of the need to enhance regulatory and supervisory efforts to set up appropriate information profiles and risk management strategies in the banks.
"The industry liquidity ratio declined from 52.95 per cent in September to 49.22 per cent in October 2008 but rose to 51.55 per cent in November. The Capital adequacy ratio continued to be robust at 22.25 per cent in November, 2008.
"The MPC noted with satisfaction the level of external reserves at US$58.11 billion as at December 10, 2008. The Committee also expressed concern about the effect of the continuing slide in oil prices on the domestic economy and assured that appropriate policy measures would be adopted to minimize the overall impact on the wider economy" the communiqué further read.
Taking a look at general expectation for the year 2009, Soludo explained that the general expectation is that in 2009 highly developed economies would post negative growth rates while emerging market economies are likely to register sharp slowdown as a consequence. Other developing countries are also expected to decelerate. In the circumstance, the policy responses of most developed and emerging economies have tended to focus on growth and financial stability.
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