Report: CBN Must Accelerate Interventions in 2021 to Boost Economy

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Dike Onwuamaeze

A report by the SB Morgen (SBM) has predicted that the Central Bank of Nigeria (CBN) will increase its interventionist stance to boost growth in country’s economy in 2021.

The report which was released yesterday with the title “The Year Ahead: Light at the End of the Tunnel- What to Expect Next Year, also said that Nigeria’s economy will come out of recession in the last quarter of 2021and predicted that only the World Bank and the International Monetary Fund’s (IMF) conditions would force the government to reopen the country’s land borders in 2021.

The SBM stated that the CBN would be compelled to accelerate its interventionist stance as the Presidency and Minister of Finance, Budget and National Planning would literarily cede their fiscal policy responsibilities to the apex bank.

The report said: “The CBN may try new tricks, including cutting Monetary Policy Rate (MPR) further or increasing the Cash Reserve Ratio (CRR) and Loan to Deposit Ratio (LDR). It will also ramp up extra-monetary interventions and expand its regulatory oversight over banking and other sectors closely tied to finance. Regardless, the outcome will be sluggish and painful economic growth.”

The report also envisaged that the CBN might be constrained to embrace a managed float of the Naira in the foreign exchange market during the first half of 2021, adding that “we expect slight devaluation of the Naira in 2021 as the CBN will face renewed pressure to fund foreign exchange requests as economic activities and travel pick up. In addition, low revenues will cause reviewed pressure from the various tiers of government to call for devaluation so they can meet budget expenditure requirements.”

The SBM further predicted that the oil prices should settle round $45 per barrel as COVID-19 vaccination gains momentum and economic activities and travel pick up. However, “Nigeria’s foreign exchange crisis will remain through 2021 due to difficulties in generating revenues,” said the SBM.

Nigeria, according to the report, would exit the recession by Q4, 2021. “This is likely to be driven by slightly higher oil prices, as well as a reopening of borders which will reverse the decline of the trade sector, one of the largest employers of labour in the country,” the report said.

Nevertheless, the productivity of Nigeria’s economy would continue to decline as the government and private sector are unable to muster the financial muscles to launch the economy back to the fast lane of growth.

The SBM also stated that the much touted reopening of Nigeria’s land borders would be realised in 2021 as part of the Brent Wood Institutions’ conditions for granting loans to the country.

It said: “We do not believe that the borders will be opened on January 1, 2021. However, Nigeria will come under pressure from the International Monetary Fund (IMF) and the World Bank to reopen them as part of the conditions for loans and will cave at some point in 2021.

“Inflation will continue to increase on the back of food inflation. The government has threatened to ban importation of fish and other goods so the likelihood of opening the borders is slim. Local food production will continue to be hindered due to insecurity and with more mouths to feed, there can be no other outcome.”

The report predicted that low revenue would force Nigeria to borrow more from concessional and multilateral lenders such as the World Bank and the IMF because commercial lenders would not be willing to lend or would only do so at high-interest rates.

“The World Bank and the IMF lending will come with conditions demanding reforms. There will continue to be some opposition to market-oriented policies from President Muhammadu Buhari. However, the financial constraints will force his hand in that direction,” SBM said

The SBM, Nigeria’s leading geopolitical intelligence platform, is an Africa focused geopolitical research and strategic communications consulting firm.