Nigerian economy grows by 3.19%, says Cardoso
The Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, has outlined plans by the CBN to address the spiralling inflation currently in the country, especially through harnessing the potential in the non-oil sector which he said drove the growth of the nation’s economy in the second quarter of 2024.
According to him, the Bank’s recapitalization policy has prompted banks to strengthen their financial positions, a process expected to result in a more robust and resilient banking sector by March 2026.
The exercise, Cardoso said, is expected to support the realisation of US$1 trillion economy by 2030.
Cardoso stated these while addressing the House of Representatives Committee on Banking on policy measures and strategies to address domestic macroeconomic challenges.
On the macroeconomic performance in 2024, he said projections indicate a growth rate of 3.2% and 3.3% for 2024 and 2025 respectively.
He added that Nigeria is projected to maintain a more robust 4.3% growth rate.
Cardoso said the non-oil sector maintained strong performance, contributing 94.30% to GDP with a steady 2.80% growth rate.
He added that the oil sector’s growth rate has almost doubled to 10.15% in Q2, 2024 from 5.70% in Q1, 2024, due mainly to improved security surveillance which resulted in increased production of crude oil and natural gas.
He said the Services sector continues to be the primary economic driver, contributing 58.76% to GDP with a robust growth rate of 3.79%.
Similarly, he said the Industrial sector has shown remarkable improvement, with its growth rate surging to 3.53% from 0.31%.
He pointed out that the contribution of agriculture to total GDP also increased. In addition, the growth rate of the sector rose to 1.41%, from a negative territory of -0.90%, indicating a substantial turnaround in productivity.
He also said the foreign exchange reserves have grown significantly, with remittance flows currently representing 9.4 per cent of total external reserves.
He said the reserves rose by 12.74% to US$39.12 billion as of October 11, 2024, from US$34.70 billion at end-June 2024, driven largely by foreign capital inflows, receipts from crude oil-related taxes and third-party.
In Q2 2024, we maintained a current account surplus and saw remarkable improvements in our trade balance, he said.
Cardoso said the current external reserve position can finance over 12 months of import of goods and services, or 15 months of goods only.
This is substantially higher than the prescribed international benchmark of 3.0 months, reflecting a robust buffer against external shocks, he said.
He said Inflation trended upward, driven largely by high food prices, cost of energy and legacy infrastructural challenges, but it commenced deceleration from 34.19% in June 2024 to 33.40% in July 2024.
He said the moderation in inflation became more pronounced in August 2024, as headline inflation further eased to 32.15%.
This, he said, was largely attributed to monetary policy measures taken by the Bank.
With aggressive monetary policy tightening coupled with robust monetary-fiscal policy coordination, inflation is expected to further trend downward in the near-to-medium term, Cardoso said.
To combat inflation, he said they had fully reverted to an orthodox monetary policy approach and implemented a comprehensive set of monetary policy measures.
These include raising the policy rate by 850 basis points to 27.25%, increasing Cash Reserve Ratios and normalising Open Market Operations as our primary liquidity management tool.
“In addition, we have adopted an Inflation-Targeting (IT) monetary policy framework as part of the Bank’s Enterprise Strategy (2024 2028).
“The IT framework, widely adopted across various global economies, is renowned for its effectiveness in combating persistent inflation.
“These integrated measures are aimed at stabilizing prices, optimizing liquidity management, and engendering an effective monetary policy framework.
“Regarding the foreign exchange market, the Bank implemented various reforms including a unification strategy, which streamlined various exchange rate windows into a single model, adopting the ‘Willing Buyer, Willing Seller’ approach to enhance FX liquidity and financial market stability.
“This move was aimed at fostering transparency, reducing market distortions, and enhancing the efficiency of foreign exchange allocations.
“This consolidation involved the implementation of new operational guidelines, which included removing the International Money Transfer Operators (IMTOS) quote cap.
“Additionally, the Bank resumed the sales of FX at the NAFEM and Bureau De Change (BDC) segments, bolstered by an improved supply from Foreign Portfolio Investors (FPIs).”
On banking supervision, he said the CBN has taken decisive actions to ensure the safety, soundness, and resilience of the banking industry.
“One of the key measures includes the recapitalization of the banking sector by raising the minimum capital base to support the $1 trillion economy envisioned by the Federal Government of Nigeria (FGN) by 2030.
“Banks are required to meet these new thresholds by March 31, 2026, with several options available for reaching these targets.
“These options include issuing of new equities, engaging in mergers and acquisitions, or adjusting their operational licenses. The Bank also revoked the licence of Heritage Bank, facilitated the successful merger of Unity Bank and Providus Bank, revised Cybersecurity Rules for Banks and PSPs, suspension of processing fees on cash deposits, and enhanced AML/CFT supervision, amongst others.”
On Monetary and fiscal policy coordination, he said they had strengthened collaboration during the period under review.
“In this regard, several joint committees have been instituted to build synergy and to provide platforms for key stakeholders’ engagements to explore ways through which monetary policy implementation and fiscal operations can be conducted in a mutually reinforcing manner.
“Overall, our policy measures reflect a holistic approach to addressing various challenges in the economy. While some measures have immediate effects, others are designed to bring about long-term structural changes. Our ultimate goal is to create a more stable, resilient, and efficient monetary and financial system that can better serve the Nigerian economy, while adhering to global best practices,”
Cardoso said the Bank’s numerous policy initiatives are yielding significant results across various sectors of the economy.
“In the foreign exchange market, we have achieved increased transparency and improved overall supply. By allowing the foreign exchange rate to be determined by market demand and supply, the CBN has reduced arbitrage and speculative activities, and eliminated the front-loading of FX demand.
“These policy measures have effectively narrowed the exchange rate disparities between the NAFEM and BDC segments, which have largely led to the convergence of FX rates. Improved transparency in the market has restored market confidence leading to increased capital inflows which enabled the CBN to clear existing FX backlogs.
“The settlement of all legitimate backlogs of outstanding FX obligations by the Bank has significantly improved Nigeria’s credibility and ratings across the global financial market, helping to boost investor confidence, and enhanced liquidity in the foreign exchange market.
“With improved investor confidence, foreign investments have increased as evidenced by a significant rise in capital importation by 65.56% to $6.49 billion between January and July 2024, compared to US$3.92 billion in the corresponding period of 2023.
“Collectively, these actions have contributed significantly to the stability of the financial system. While inflation remains a major concern, we are not relenting in ensuring that requisite measures are taken.
“Headline inflation slightly increased from 32.15% in August to 32.70% in September 2024. The MPC further tightened the policy rate in its September meeting in anticipation of an uptick in inflation due to the upward adjustment of the petroleum pump price.
“On a positive note, there was a moderation in core inflation from 27.58% to 27.43% over the same period. We therefore expect the year to end with significant moderation in inflation, as our policy measures permeate the real economy,” he said.
The CBN Governor also said the capital market has responded positively to their policies, with the All-Share Index and market capitalization sustaining positive gains, reflecting renewed investor confidence.
“In general, Nigeria’s international standing has improved, with rating agencies upgrading our sovereign credit ratings.
“In the banking sector, our policies have resulted in improved market oversight and operational efficiency. Key financial soundness indicators show a robust capital adequacy ratio, and improved liquidity ratio, amongst others.
“In addition, the Bank’s recapitalization policy has prompted banks to strengthen their financial positions, a process expected to result in a more robust and resilient banking sector by March 2026.
“The exercise is expected to support the realisation of the US$1 trillion economy by 2030.
“Amidst the identified challenges, the Bank’s sustained reforms and strategic interventions have produced encouraging outcomes in diverse areas of our financial landscape and the broader economy.
He further assured that overall, the banking industry remains sound, safe, and resilient, with improvements in liquidity and asset quality.
Speaking on the outlook for the economy, Cardoso said he was confident as the country expects continued positive growth, especially in the non-oil, oil and industrial sectors.
“However, we remain cautious about potential global economic disruptions and domestic challenges.
“We project the Services sector to remain the primary economic driver, while the Industrial sector is expected to continue its recovery.
“Agricultural growth is anticipated to improve, supported by the harvest season and government initiatives.
“The Oil sector is also expected to maintain positive growth, assuming no significant disruptions.
“Inflation remains a pressing concern, but there are reasons for optimistic outlook. Inflation has shown gradual moderation, indicating that the Bank’s monetary policy measures are becoming effective.
“We anticipate steady moderation of inflationary pressures in the last quarter of 2024, supported by our monetary policy measures and the Federal Government’s recent initiatives, such as tax incentives on businesses in the economy.
“The Naira exchange rate has shown some recent improvement as indicated by relative stability.
“We must acknowledge key risks, including global economic uncertainties, security challenges, potential oil price volatility, decline. With your support and the Central Bank’s steadfast dedication, I am confident we can pave the way for a more prosperous Nigeria,” he said.
On the macroeconomic performance in 2024, he said although positive, these estimates remain below historical averages, suggesting moderate rather than robust expansion.
“However, we must remain vigilant as the ongoing geopolitical tension such as the Russian-Ukrainian war and the Middle East crisis, lingering supply chain disruptions and inflationary pressures continue to pose significant risks.
“In the crude oil market, we have observed a decline in prices during the third quarter of 2024, primarily driven by increased supply and revised global demand projections.
“Turning to domestic developments, I am pleased to report that our economy has demonstrated remarkable resilience. In the second quarter of 2024, the economy grew by 3.19%, up from 2.51% in the corresponding period of last year, driven largely by the non-oil sector.
“The Services sector continues to be the primary economic driver, contributing 58.76% to GDP with a robust growth rate of 3.79%. Similarly, the Industrial sector has shown remarkable improvement, with its growth rate surging to 3.53% from 0.31%. The contribution of agriculture to total GDP also increased. In addition, the growth rate of the sector rose to 1.41%, from a negative territory of -0.90%, indicating a substantial turnaround in productivity.
“Importantly, the non-oil sector maintained strong performance, contributing 94.30% to GDP with a steady 2.80% growth rate. The oil sector’s growth rate has almost doubled to 10.15% in Q2, 2024 from 5.70% in Q1, 2024, due mainly to improved security surveillance which resulted in increased production of crude oil and natural gas.
“On the fiscal front, the deficit-to-GDP ratio stood at 4.1% for the first half of 2024, while consolidated public debt was 51.2% at end-March 2024. Although total debt stock exceeds the self-imposed 40.0% national threshold, it remains well within the international benchmark, indicating that our debt levels remain within manageable limits, although requiring attention.
“In the foreign exchange market, we have adopted key policy measures leading to improved efficiency in the market. In particular, Diaspora aww through International Money Transfer Operators (IMTOS) have risen considerably by 36.61% to US$552.94 million in July 2024, from US$404.75 million in May 2024,” he said.
He said they have embarked upon various initiatives to improve the remittance ecosystem.
Source: VANGUARD with headline slightly edited
