The Central Bank of Nigeria (CBN) has expressed concern over the country’s declining economic activities. It cited a sharp decline in the Composite Purchasing Managers’ Index (PMI) to 39.2 index points in February 2024 from 48.5 index points in the previous month. According to the CBN deputy governor of Corporate Services, Bala M. Bello, economic activity has been contracting for eight consecutive months due to exchange rate pressures, inflation, security challenges, and other factors. He emphasized the need for well-nuanced policy decisions to address price stability and prevent further economic stagnation.
Also, the bank highlighted the rising inflationary trend, with forecasts of further price increases in the near term. Both food and core inflation rose in February 2024, leading to an acceleration in headline inflation to 31.70% from 29.90% in the previous month. The country’s inflation soared to 33.22% in March, which is unacceptably high and requires coordinated efforts to curb. The deputy governor commended the Federal Government’s initiatives to address food insecurity, including releasing grains from strategic reserves, distributing seeds and fertilizers, and supporting dry season farming.
PMI has steadily declined over the past eight months.
However, he emphasized the need for decisive and coordinated efforts to curb inflation, given its adverse impact on citizens’ purchasing power, investment decisions, and broad output performance. The decline in economic activities is a worrisome trend that requires immediate attention from policymakers. The PMI, which measures the performance of the manufacturing sector, has been declining steadily over the past eight months, indicating a contraction in economic activity. This decline is attributed to various factors, including exchange rate pressures, rising input prices, security challenges, and other idiosyncratic headwinds.
Exchange rate pressures have been a major challenge for the economy, with the naira experiencing a steep depreciation against major currencies. This has led to an increase in the cost of imports, which has further exacerbated the inflationary pressures. The mother bank has implemented various measures to stabilize the exchange rate, including the introduction of the Investors’ and Exporters’ window, which has helped to improve the supply of foreign exchange. Rising input prices have also been a major challenge for businesses, particularly in the manufacturing sector. The increase in the cost of raw materials and other inputs has led to higher production costs, which has further contributed to the decline in economic activity.
CBN has implemented various measures to address the issue.
Meanwhile, the apex bank has implemented various measures to address this challenge, including the introduction of the Anchor Borrowers’ Program , which provides loans to farmers at a reduced interest rate. Security challenges have also been a significant factor in the decline of economic activities. The country has been experiencing a rise in insecurity, particularly in the north-east region, which has led to a decline in economic activity. The CBN has implemented various measures to address this challenge, including the introduction of the Military Pension Fund, which provides financial support to military personnel.
Bello emphasized the need for well-tailored policy decisions to address the decline in economic activities. He noted that the country requires a coordinated effort to address the various challenges facing the economy, including exchange rate pressures, rising input prices, security challenges, and other idiosyncratic headwinds. The CBN has implemented various measures to address the decline in economic activities, including the introduction of the Monetary Policy Rate (MPR), which has been increased to 24.75% in March 2024. The MPR is the rate at which the CBN lends to commercial banks, and it has a significant impact on the overall direction of interest rates in the economy.
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Various measures to improve the supply of credit to the economy have also been implemented, including the introduction of the Loan-to-Value (LTV) ratio, which requires commercial banks to maintain a minimum ratio of loans to value of assets. This has helped to improve the supply of credit to the economy, particularly to small and medium-sized enterprises. In addition, the CBN has implemented various measures to improve the business environment, including the introduction of the Ease of Doing Business initiative, which aims to simplify the process of starting and running a business in the country.
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