CBN Governor Pledges Accommodative Monetary Policy to Spur Economic Growth


Friday, February 26, 2021 10:51 PM / by CBN / Header Image Credit: CBN 

Being an address delivered by the CBN Governor Godwin Emefiele, CON at the Vanguard Economic Summit Lagos, Nigeria on 26 February 2021




It is indeed a pleasure to participate in this Summit, being organized by the Vanguard Newspapers and please permit me to express my deepest appreciations to a man I have great respect for, the publisher of Vanguard Newspaper, fondly called Uncle Sam Amuka. I would also like to thank his management team, for their relentless efforts towards the success of today's event.


Given the external and domestic factors that are influencing current outcomes in our economy, I believe this summit presents a significant opportunity to address critical stakeholders on events that are shaping our economy, and the policy responses being embarked upon by the Central Bank of Nigeria to support faster economic growth and continued stability of our financial system.


It is in this light that the theme of today's conference "Bankers' Initiative for Economic Growth" is appropriate and timely when we take into account the unprecedented impact of the COVID-19 pandemic on the global economy and indeed the Nigerian economy in 2020.


Policy makers across the globe have been faced with a dual challenge of trying to address an public health crisis, and a major economic challenge. Before I speak to the efforts we are making on both fronts, let me first summarize the economic spillovers we have suffered from COVID-19.


Economic Impact of COVID-19

As most of us are aware, the spread of the virus along with the corresponding containment measures, led to a significant slowdown in global growth in the first half of 2020. Countries such as the United States, United Kingdom, India and South Africa, witnessed contractions of 9.5 percent, 20 percent, 24 percent and 17 percent respectively in the 2nd quarter of 2020.


Commodity exporting countries like ours also faced significant revenue challenges as commodity prices such as crude oil, dipped by over 65 percent in the 1st half of the year. In addition, investors pulled over US$100 billion from emerging market countries in the 1st half of the year, which resulted in a corresponding depreciation in the currencies of several emerging market countries.


Global Response

As a result of the downturn in growth, advanced and emerging market countries implemented series of conventional and unconventional measures, aimed at curtailing the spread of the virus and stimulating greater economic recovery. In the United States, the Federal 4 Reserve acted boldly and swiftly with policy actions amounting to over US$3 trillion in liquidity support to households, businesses, and financial markets.


On fiscal policy front, the US government committed over $4 trillion to mitigate the effects on the downturn on households and businesses. In total, US stimulus measures amount to close to 35 percent of its GDP. In the United Kingdom, the Bank of England has so far committed $1.2 trillion as part of its quantitative easing program, in addition to fiscal measures amounting to £280 billion ($375 billion). This is equivalent to roughly 56 percent of the UK's GDP. In emerging markets like India and South Africa, we have seen combined fiscal and monetary stimulus efforts of close to 15 5 percent ($400bn) and 10 percent of GDP ($26 billion) respectively. In Nigeria our combined stimulus measures so far is about US$18 billion, which is close to 4.5 percent of our GDP.


Contrary to expectations by some analysts that the covid-19 pandemic would lead to a prolonged downturn in the global economy, they did not quite envisage the proactive forcefulness with which policymakers could respond to the crisis. Indeed, the unprecedented amount of stimulus, along with the successful development of several vaccines, and easing of movement restrictions, helped to support a robust and faster-than-expected recovery in the 2nd half of the year.


The United States, India, UK and South Africa witnessed positive growth of 7.5, 21.9, 16.1 and 6 13.5 percent respectively in the 3rd quarter of 2020.


Notwithstanding these recoveries, most advanced and emerging market countries including Nigeria, but with the exception of China, are expected to see full year negative growth in 2020. According to the IMF, global growth is expected to decline by 3.5 percent in 2020 but would recover sharply to a growth of 5.5 percent in 2021. Consequently, 2021 is expected to be a year active recovery for the global economy and Nigeria Must not be left out.  


In Nigeria, the onset of the COVID-19 pandemic in the 1st half of 2020, and the measures put in 7 place to contain the spread of the virus, caused a significant shock to our economy. The downturn in economic activity, which was particularly significant in the 2nd quarter of the year, was driven by a series of external factors such as the drop in commodity prices, outflows of portfolio funds, supply chain disruptions, in addition to the lockdown measures imposed, in order to curtail the spread of the virus. Consequently, the Nigerian economy contracted by 6.1 percent in the 2nd quarter of 2020, down from a positive growth of 1.87 percent recorded in the 1st quarter of 2020.


The over 70 percent decline in crude oil prices in the first half of the year, led to a significant reduction in our foreign exchange earnings. Today, crude oil prices have recovered from its low of $19 per barrel in April 2020, and currently stand at an average of $60 per barrel.


The drop in crude oil earnings and associated reduction in foreign portfolio inflows significantly affected the supply of foreign exchange into Nigeria. In order to adjust for the decrease in supply of foreign exchange, the nai ra depreciated at the official window from N305/$ to N360/$ and now hovers around N410/$.


With the decline in our foreign exchange earnings and subsequent adjustments in the value of the naira vis-à-vis the US dollar, the CBN has continued to implement a demand management framework, which is designed to 9 support improved production of items that can be produced in Niger ia, and fur ther conservation of our external reserves. These measures have helped to prevent a significant decline in our reserves. Our external reserves currently stand at over $35 billion and is sufficient to cover more than 7 months of import of goods and services, even though the international rule of thumb is for reserves to cover about 3 months of imports.


On inflation, we note that the general price level in 2020 have responded to several shocks including disruption to global and domestic supply chains as a result of COVID-19, energy price adjustments, supply/logistic bottlenecks reflecting insecurity in many parts of the 10 country, the adjustments in the exchange rate, which has made imports more expensive. To this end, headline Inflation rose from 12.26 percent in March 2020 to 16.47 percent in January 2021.


The rise in inflation along with the need to implement growth enhancing measures that would enable the Nigerian economy to emerge from the recession, continues to pose a dilemma for policy making authorities. Research conducted by the CBN notes that the rise in inflation has been due to cost-push factors rather than demand pull factors. As a result, the CBN has placed greater weight on utilizing tools that would address the shocks to economic growth, while at the same time 11 helping to provide facilities that can reduce the cost-push factors in inflation. Let me now turn to some of these measures in greater detail.


Response by the Monetary and Fiscal Authorities

In response to the impact of COVID-19 on key economic variables earlier mentioned, the fiscal and monetary authorities took unprecedented measures to prevent the economy from going into a tailspin. Our first objective was to restore stability to the economy by providing assistance to individuals, SMEs and businesses that had been severely affected by the pandemic, as well as by the lockdown measures. Some of the measures we took include:


i.                 A 1-year extension of the moratorium on principal repayments for CBN intervention facilities;


ii.               Reduction of the MPR rate by 200 basis points from 13.5 to 11.5 percent, between May and September 2020 in order to spur lending.


iii.             Regulatory Forbearance was granted to banks to restructure loans given to sectors that were severally affected by the pandemic


iv.             Reduction of the interest rate on CBN intervention loans from 9 to 5 percent


v.               Mobilization of key stakeholders in the Nigerian economy through the CACOVID alliance, which led to the provision of over N25bn in relief materials to affected 13 households, and the set-up of 39 isolation centers across the country.


vi.             Strengthening of the Loan to Deposit ratio policy, which has resulted in a significant rise in loans provided by financial institutions to banking customers. Credit to the private sector rose by 17 percent in 2020.


vii.           Disbursement of over N204 billion to 447,671 beneficiaries, under the target credit facility for affected households and small and medium enterprises, through the Nirsal Microfinance Bank


viii.         Disbursements of over N83.9 billion in loans to pharmaceutical companies and healthcare practitioners, to support 81 healthcare projects, which would expand 14 and strengthen the capacity of our healthcare institutions.


ix.             Disbursements of over N476 bn out of our N1trn facility to support 76 manufacturing and real sector projects, which would boost local manufacturing and production across critical sectors.


x.               Disbursements of over N260bn to 1.28 million farmers under the Anchor Borrowers Scheme in 2020 to support cultivation of key staple items by farmers.


Domestic financial conditions have remained supportive to growth, due to measures being implemented by the CBN. Aggregate domestic credit grew by 17 percent between January and December 2020, highlighting the effects of the CBN's intervention programs, our LDR policy 15 and accommodative lending rates by the banks. Non-performing loan ratios have fallen from 6.5 percent in January 2020 to 6.0 percent as of December 2020.


In the equities market, the Nigeria Stock Exchange has continued to record positive performance, as the All-Share Index increased from 20,098 in April 2020 to 40,270 by December 2020. The rise in the index is due to positive sentiments arising from improved earnings and output by several listed corporates on the exchange.


These measures have helped to mitigate the effects of the COVID-19 pandemic on the economy. As a result, Gross Domestic Product 16 (GDP) growth had a swift rebound in the 4th quarter of 2020, as it expanded by 0.11 percent, after two consecutive periods of negative growth.


The rebound in growth was driven by Agriculture and ICT, as these sectors grew by 3.42 percent and 14.7 percent, respectively in the 4th quarter of 2020. Contraction in the manufacturing sector declined to 1.5 percent from 8.78 percent in the 2nd Quarter of 2020. This result is similar to the Manufacturing Purchasing Managers Index, which stood at 49.6 points in December 2020, indicating a recovery in manufacturing activities relative to a low of 43 points in April 2020, even though it still remained below the 50-point benchmark.


In addition, of the 46 economic activities tracked by NBS, 31 of these activities expanded relative to 13 activities in the 2nd quarter of 2020, reflecting continued improvements in growth. Overall, in 2020, annual growth of real GDP stood at -1.92 percent, relative to the 2.27 percent growth recorded in 2019.


While the indicators above provide positive signs that the economy is on a recovery path, GDP growth at 0.11 percent indicates that the economy still remains on a fragile recovery path. It is therefore imperative that we do all we can in 2021 to ensure that we build on the positive momentum and strengthen our efforts at stimulating growth. Let me repeat, with the 18 discovery and deployment of vaccines, 2021 will be a year of massive global recovery and Nigeria MUST not be left out.


In order to drive and sustain this recovery therefore, we need to engage in the following broad actions:


1)Sustain the accommodative fiscal and monetary policy measures aimed at improving access to finance to households and businesses


2) Prevent a resurgence in COVID-19 related cases


3) Ensure that a significant number of our population is properly vaccinated.


4)Improving Foreign Exchange inflows into the country.19 Let me briefly elucidate on these points.


Accommodative Monetary Policy

In 2021 it is imperative that the CBN continue to provide accommodative monetary policy measures that will enable faster recovery of the economy, through improved flow of credit to households and businesses in key sectors of the economy such as Agriculture, ICT and Manufacturing. These measures are essential if we are return our economy to a sustainable growth path, while reducing our exposure to volatility in commodity pr ices. While accommodative monetary policy measures that will support growth remain paramount in our priorities for 2021, we would continue to pay attention to trends in inflation, as price stability 20 is critical in guiding savings and investment decisions by households and businesses.



As indicated earlier, the agriculture sector was a key driver in taking the Nigerian economy away from negative growth in the 4th quarter of 2020. It is important that we not only sustain measures aimed at increasing productivity of the sector, but also ensure that we continue to produce items that can be produced locally rather than resorting to imports of these items. More importantly our agricultural sector also offers significant opportunity for the nation to earn foreign exchange through the exports of processed agricultural products. Over the next 3 years, we will continue to encourage the 21 banking sector to increase its loans to the agriculture sector from 4 percent to 10 percent by 2024.


We are also pursuing an in-depth restructuring of the Nigeria Commodities Exchange Board in order to improve access to finance as well as productivity for stakeholders in the agriculture sector. With enhanced logistics and the provision of warehouse receipts through the Commodities Exchange, farmers will be able to access finance, expand production and supply needed goods to off-takers.


Information and Communications Technology

Another sector which has emerged as a significant source of resilience in mitigating the impact of COVID-19 on the economy, is Information and Communications Technology (ICT). In the 4th quarter of 2020, the ICT sector made contributions of over 14.70 percent to GDP growth, 4 percent points higher than its contributions a year earlier. The Central Bank in 2021would seek to encourage banks and other financial institutions to leverage ICT in improving penetration of financial services to households and SMES, while supporting productivity across key sectors in the economy.


Infrastructure Finance

With the decline in revenues due to federal and state government, alternative ways of funding infrastructure are critical if we are to generate sustained growth of our economy. As we are all aware, a well-built infrastructure system can have a multiplier effect on growth by enabling the expansion of business activities in the country.


That is why I am delighted that Mr. President has continued to give all the necessary approvals and support to establish the Infrastructure Corporation of Nigeria Limited. InfraCorp will be co-owned by the CBN, the African Finance Corporation and the Nigerian Sovereign Investment Authority and would become fully operational by the second quarter of 2021. This vehicle would enable the use of 24 pr ivate and publ i c capi tal to suppor t infrastructure investment that will have a multiplier effect on growth across critical sectors.


Improving Foreign Exchange Inflows


Non-Oil Exports

The CBN intends to support measures that will improve our non-oi l expor t earnings significantly. As a result, we intend to aggressively implement our N500 billion facility aimed at supporting the growth of our non-oil exports, which will help to improve non-oil export earnings. Exporters will be further encouraged to repatriate their export proceeds as stipulated under our extant laws. The CBN will continue to ensure that exporters have unfettered access to their export proceeds.



The CBN has already taken several measures to increase the flow of diaspora remittances into the country using formal channels. In December 2020, we instructed all international money transfer operators (IMTOs) to provide remitters with the option of sending foreign exchange to beneficiaries in Nigeria. This new measure has helped to reduce the diversion of fx by some IMTOs, who had thrived from fx arbitrage arrangements, rather than on improving transactions volumes to Nigeria. Indeed, we have already seen remittances improve from a weekly average of about US$5 million before this policy, to over US$30 million per week. We believe this measure will help to significantly 26 boost inflows of FX and create much more liquidity in that space.


Distinguished ladies and gentlemen, in concluding my remarks, let me add that while the effects on COVID-19 has brought on several challenges to our economy, it also offers a unique opportunity for us to build a more resilient economy in 2021 that is better able to contain external shocks, whilst supporting growth and wealth creation in key sectors of our economy. Proactive steps on the part of stakeholders in the banking and financial system in supporting the growth of sectors such as Agriculture, ICT and Infrastructure, will strengthen our ability to deal with the challenges that have been brought on by 27 COVID-19, and stimulate the growth of our economy.


I thank you for your attention.


Godwin I. Emefiele (CON)

Governor, Central Bank of Nigeria

26 February 2021


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