The Central Bank of Nigeria (CBN) has revealed that the expanded Federal Government’s budget deficit, escalating level of unemployment, rising inflation arising from increase in Value Added Tax (VAT) and border closure threaten various efforts to reduce the effects of the COVID-19 pandemic on the citizenry.
This is contained in the Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for Fiscal Years 2020/2021 released at the weekend.
Painting a gloomy picture of the economic outlook, the Central Bank also predicted that the inflation rate could exceed 14 percent by December this year.
The regulator listed the N100-billion credit to the health sector, the N50-billion lifeline extended to micro, small and medium enterprises (MSMEs) and the N1-trillion intervention in manufacturing as well as the extension of loan-to-deposit ratio from 60 percent to 65 percent as some of the initiatives that are expected to “encourage and expand domestic production, improve productivity” and create jobs.
“Although these measures are commendable, there are headwinds that may undermine these expectations. These include increased federal government deficits, which may narrow fiscal space and crowd out private investment; underutilisation in the labour market due to weakened aggregate demand and a build-up in inflationary pressures resulting from the increase in VAT and border protection.
“Headline inflation is expected to hover around 13.97 and 14.15 percent at end-December 2020, owing to supply shocks, which may likely happen due to declining economic activities globally as a result of COVID-19 pandemic that started in China in Q4, 2019; demand shocks emanating from domestic and international lockdowns; food supply shocks associated with non-tariff border protection and effect of the implementation of the new budget and minimum wage,” it noted in the 143-page document.
