The Federal Government has said the country’s economy was technically in a recession.
The Minister of Finance, Mrs. Kemi Adeosun, who appeared before the Senate, said the current indices in the country had shown that there was an economic downturn.
A recession is defined as a significant decline in activities across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale retail trade.
The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country’s Gross Domestic Product.
Nigeria’s GDP growth contracted to -0.36 per cent in the first quarter of this year compared to 2.11 per cent in the fourth quarter of 2015. Several economists have already forecast that the economy is likely to contract again in the second quarter of this year.
The National Bureau of Statistics is due to release the GDP figure for the second quarter any time from now.
After addressing the lawmakers, the minister told journalists that Nigeria was not the only country in recession globally, and urged the citizens not to panic over the current state of the economy as the President Muhammadu Buhari administration would soon change the course of the economy for good.
She said, “Technically, in economic terms, if you have two periods of negative growth, you are in a recession. I don’t think we should spend too much time on this. The issue is we are in a tough place, whether we call it recession or not, we are in a tough place. But most importantly, we are going to get out of it. What we are doing is moving us out of it.
“Social intervention programmes have been funded; those of providing relief to the poorest. Every single person in every local government will be touched by those programmes. We have started and we will continue to get us out of it.
“We are not the only country in recession; there are many countries doing far worse than us. For Nigerians, that is not comfortable. What Nigerians want to know is, ‘How is it going to affect them?’ I want to assure everybody that what we are doing is going to work and it is going to turn this economy around.”
Earlier, while addressing the lawmakers, Adeosun had said, “Is Nigeria in recession? Technically, yes. If you go into the two conditions of negative growth, you are in recession. But I don’t think we should dwell on definitions, we should dwell on where we are going.
“If we are in recession, what are we likely to face? When are we likely to come out of it? And it will be a very short one because with the policies that we have, we will ensure that we don’t go beyond where we need to go. With what we are doing, we will begin to turn around the corner.”
Adeosun, while answering one of the 28 questions posed to her by the lawmakers during plenary, stated that Nigeria remained the biggest economy in Africa despite the economic challenges facing it, adding, “We are going through a difficult time but while we are rebuilding, we will go out of this challenge stronger than the way we came in.”
No bailout for states
The minister also stated that the Federal Government had not issued bailouts to states as widely believed, explaining that the government had always been standing as a guarantor for loans obtained by the states.
She said, “As far as I am aware, we have not done any bailout. The bailout was done by the Central Bank of Nigeria last year. What we did last month was that we recognised that the states could no longer borrow. Most of them had reached their limits of borrowing and they had no liquidities; they could not pay salaries and it had created crisis in the land.
“What we did for them was credit enhancement. We gave the guarantee that enabled them to borrow. We in the executive have not lent any money to the states; we have no authority to do so and we have not done so.
“What we simply did was to grant partial risk guarantees to the state governments to enable them to borrow. Those instruments were bought and held by the commercial banks and not by the Federal Government. We have not granted any bailout.
“What we also did was to tie it to a fiscal credibility plan, which requires the states and local governments to pursue the same reforms we are pursuing at the federal level – to be disciplined, clean up their payroll, introduce efficiency units and redefine what the IGR means. That will be a fundamental change you will see in the state governments.”
Adeosun also said the Buhari-led administration had made importation of agricultural equipment duty free as part of efforts to speed up the diversification of the country’s economy towards agriculture.
The minister urged Nigerian not to panic over the low ratings of Nigerian economy by the International Monetary Fund, Bloomberg and other global institutions, saying the country was in the right direction economically.
Spend massively to tackle recession – Experts
Economic and financial experts, who spoke with one of our correspondents in separate interviews, agreed that the economy had slid into a recession, stressing the need for massive government spending to revive it.
The Director-General, West African Institute for Financial and Economic Management, Prof. Akpan Ekpo, said, “The economy is in a recession. What we need now is a robust fiscal policy. Government has to spend – pour more money into the economy – not just on capital projects.”
He said salaries owed to workers by states should be paid so that people could have money to buy goods and services.
Ekpo added, “The recession is a special type. It has effects on both the supply and demand sides. So, the way to solve that is massive government capital and recurrent expenditure. Monetary policy will not be effective. The dilemma that they have is where to get the revenue. I am sure they are borrowing to finance the expenditure because oil revenue is not increasing at the rate they want.
“How fast they can begin to implement the fiscal policy is crucial. If government fails to act and the recession persists, and becomes a depression, then we are in a big mess. Now, we need massive fiscal stimulus into the economy, and we have to do that like yesterday.”
The Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane, said, “We are already in recession. All the time you have a deficit budget, you are borrowing; you are expanding activities. The way to be out of a recession is to spend your way out of it. So, that is what they are doing. They are doing all the things that need to be done.”
A former President of the Nigerian Economic Society, Prof. Akin Iwayemi, said to achieve recovery, the government must put in place the right policies and implement them fast.
“It doesn’t seem to me now that we are taking the right polices,” he said, stressing the need to tackle insecurity, energy crisis and militancy, and take concrete steps to diversify the economy away from oil.
The Head of Research and Investment Advisory, SCM Capital Limited, Mr. Sewa Wusu, said, “It is a conundrum. We have high inflation and recession. To counter recession, the Federal Government needs to spend money. However, the problem we have is that the money is not there.
“What we can do for now is to reduce importation and seek to boost local production.”
Analysts also advised Nigerians to brace for tougher times as the recession might last till at least the end of this year.
According to them, the obvious signs of recession are rising cost of living, declining purchasing power of the citizens, increasing job losses and general hardships, among others.