By Obinna Chima
The federal government has been advised to urgently deploy policy tools to tackle looming crisis in the country’s economy.
According to FSDH Merchant Bank’s monthly economic report for March, Nigeria’s economy faces the possibility of capital flight resulting from monetary policy normalisation in the advanced countries; possible drop in the crude oil price at the international
market; and increase in food prices due to rising unrest in the food producing states with attendant unfavourable impacts on inflation rate.
According to the report titled: ‘Growth Prospects with Rising Uncertainties,’ Nigeria’s GDP growth is still fragile and therefore requires additional policies to achieve sustainable growth particularly in the non-oil sector. It however, identified two sectors – agriculture, and mining and quarrying as the major drivers
of the economic growth, pointing out that trade, information and communication, manufacturing and real estate contracted.
The firm observed the slowdown in the Purchasing Managers’ Index (PMI) for the second consecutive month as contained in the latest PMI report published by the Central Bank of Nigeria (CBN) for the month of
February 2018.
It revealed that some businesses have expressed concerns over the rising social unrest in some parts of the country and delays in fiscal and monetary policies announcement.
The report however, noted that policymakers and economic managers in the country need to pay urgent attention to the declining trend in the PMI in order to nip it in the bud.
Also, the report noted the increase in foreign capital inflows into the economy in 2017, which it stressed was positive for the economy.
It however, advised that government to encourage more foreign direct investments (FDIs) in the economy in order to accelerate the growth of the real economy and to avoid the negative impact on the foreign exchange market, usually associated with the unexpected withdrawals of the FPIs.
Highlighting more findings of the research at a press briefing in Lagos, Head, Research Unit, FSDH, Mr. Ayo Akinwunmi, said the balance of trade was positive but remained volatile.
“Favourable price of crude oil in the international market, improved crude oil production in Nigeria, and the positive outlook for the global economy improved the Nigeria’s external sector position in Q4
2017. The latest Q4 data on foreign trade confirms this trend,†Akinwunmi said.
He further explained: “The fact that the crude oil exports dominate total exports at 81 per cent further reveals the fragility of the Nigerian exports to the movements in the crude oil markets.
“Deliberate polices are required to develop the export oriented sectors of the Nigerian economy.
He added: “We believe the inflation rate is on course to drop to single digit rate around mid-year provided there is stability in the global crude oil price, there is no adjustment to the price of premium motor spirit (PMS) and, electricity tariff, and government resolve the rising crisis in some parts of the country quickly.â€
According to him, the declining inflation may lead to a drop in the yields on fixed income securities, particularly at the short-end of the yield curve.
He predicted that a total inflow of about N1.68 trillion was expected to hit the money market from the various maturing government securities and Federation Account Allocation Committee (FAAC)in the month of March 2018, anticipating a total outflow of about N700 billion from the various sources such as government securities and statutory withdrawals, that would lead to a net inflow of about N980 billion.
