…Nigeria’s GDP growth slows to 2.31% in Q1 2023, NBS blames Naira scarcity
By Seun Ibiyemi
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has increased the Monetary Policy Rate (MPR) to 18.5 per cent from 18 per cent.
The CBN Governor, Mr Godwin Emefiele, made this known on Wednesday in Abuja, after presenting the communique from the 291st meeting of the MPC.
The MPR is the baseline interest rate in an economy, on which every other interest rate used within an economy is built.
The committee had raised the MPR from 17.5 per cent to 18 per cent at its last meeting in March.
According to Emefiele, the 11 MPC members at the meeting were faced with the dilemma of whether to hold or to hike the policy rates to offset the moderate increase in headline inflation.
“Considering the option of a hold-policy, the committee reiterated the empirical counterfactual evidence and believe that the rate hikes have indeed helped moderate continued rising inflation.
“In addition, the evidence revealed that the rate hikes also helped moderate growth in new credit and reduced a pent-up aggregate demand, which had continued to heighten inflationary pressure.
“Members were unanimous in their conclusion that the current policy stance is, indeed, impacting targeted parameters and yielding the expected outcome, albeit, somewhat slowly,” he said.
Emefiele said that the MPC members were also convinced that the current uptrend in inflationary pressure was driven by a combination of both demand and supply side issues.
“The MPC observed the continued risk to price development driven primarily by expectation of rising energy and food prices, unabating security challenges in food producing areas, as well as persisting exchange rate pressure.
“The committee, thus, felt it expedient to continue to address the demand side issues falling within the ambit of its policy tools,” he said.
According to him, the balance of argument thus leaned significantly in favour of a further hike, albeit less aggressively, considering the adverse impact of rising inflation on real income.
“The MPC considered that the current policy stance is moderating the rising inflation, and sustaining the stance would consolidate the gains made so far,” he said.
The CBN Governor said that tightening would also support efforts toward moderating the demand-pool inflation as cost of funds increased.
“Members, therefore, resolved by unanimous decision to raise the MPR moderately.
“10 members voted to raise the MPR by 50 basis points and one member, by 25 basis. All members voted to hold all other parameters constant.
“Members voted to raise MPR to 18.5 per cent; to retain the Assymetric Corridor of +100/-700 basis points around the MPR, retain the Cash Reserve Ratio (CRR) of 32.5 per cent and retain the Liquidity Ratio of 30 per cent,” he said.
Meanwhile Nigeria’s Gross Domestic Product (GDP) grew by 2.31per cent year-on-year in real terms in the first quarter of 2023, indicating a 1.21 per cent points lower than 3.52 per cent recorded in the previous quarter and 0.8 per cent lower compared to 3.11 per cent recorded in the corresponding period of 2022.
This is according to the recently released Gross Domestic Product report by the National Bureau of Statistics (NBS).
The Statistics Bureau blamed the slowdown in GDP growth rate on the naira scarcity which occurred in the first quarter of the year as the central bank refused to back down on its naira swap policy.
“The reduction in growth is attributed to the adverse effects of the cash crunch experienced during the quarter.”
The naira swap policy led to major scarcity of naira notes affecting businesses across the country most of whom rely on cash to transact. The Supreme Court in March, ruled against the policy, ordering the central bank to extend the deadline for the expiry of the old notes to December 31st, 2023.
The performance of the GDP in the first quarter of 2023 was driven mainly by the Services sector, which recorded a growth of 4.35 per cent and contributed 57.29 per cent to the aggregate GDP.
The agriculture sector contracted by 0.9 per cent, lower than the growth of 3.16 per cent recorded in the first quarter of 2022.
Although the growth of the industry sector improved to 0.31 per cent relative to -6.81 per cent recorded in the first quarter of 2022, agriculture, and the industry sectors contributed less to the aggregate GDP in the quarter under review compared to the corresponding period of 2022.
The real growth of the oil sector was –4.21 per cent (year-on-year) in Q1 2023, indicating an increase of 21.83 per cent points relative to the rate recorded in the corresponding quarter of 2022 (-26.04 per cent).
Growth increased by 9.18 per cent points when compared to Q4 2022 which was –13.38 per cent. On a quarter-on-quarter basis, the oil sector recorded a growth rate of 20.68 per cent in Q1 2023.
The Oil sector contributed 6.21 per cent to the total real GDP in Q1 2023, down from the figure recorded in the corresponding period of 2022 and up from the preceding quarter, where it contributed 6.63 per cent and 4.34 per cent respectively.
The country recorded an average daily oil production of 1.51 million barrels per day (mbpd) in Q1 2023, higher than the daily average production of 1.49mbpd recorded in the same quarter of 2022.
However, it was higher than the production volume of Q4 2022 (1.34 mbpd) by 0.17mbpd.
The non-oil sector grew by 2.77 per cent in real terms during the reference quarter (Q1 2023). This rate was lower by 3.30 per cent points compared to the rate recorded in the same quarter of 2022 and 1.67 per cent points lower than the fourth quarter of 2022.
This sector was driven in the first quarter of 2023 mainly by Information and Communication (Telecommunication); Financial and Insurance (Financial Institutions); Trade; Manufacturing (Food, Beverage & Tobacco); Construction; and Transportation & Storage (Road Transport), accounting for positive GDP growth.
In real terms, the non-oil sector contributed 93.79 per cent to the nation’s GDP in the first quarter of 2023, higher than the share recorded in the first quarter of 2022 which was 93.37 per cent, and lower than the fourth quarter of 2022 recorded as 95.66 per cent.