The Continued Pursuit Of Heterodox Monetary Policy And Its Significance

The heterodox monetary policy, also known as the unconventional monetary policy was utilized by Central Bank of Nigeria (CBN) in addressing the 2015-2016 economic recessions, following the peer initiation of the USA and the Euro Area central banks during the 2008/2009 global financial crisis. Before the initiation of this policy, central bank’s policymakers have been indoctrinated by the orthodox belief system of price stability as the sole responsibility of the central banks, advocated by Bretton woods (such as IMF).

During the 2015-2016 economic recession, the CBN took an extraordinary pursuit beyond the sole chase of price stability to output growth and the crisis of unemployment through the following unconventional strategies; increasing the Monetary Policy Rate (MPR) by 17 percent; restrict about 43 items – which four of the items constitute over N1 trillion of Nigeria’s annual import bill; introduction Investors and Exporters (I&E) window; launching of the Anchors Borrowers Programmes, targeted to stimulate partnership between large-scale-agro-processors and smallholders farmers, while access to credit for farmers is being improved; and among others.

Going forward, the unprecedented challenge posed by the novel coronavirus and its drag effect on economic activities necessitated the continued pursuit of the heterodox monetary policy toolkits by the CBN bank. On 16th July 2020, a circular was issued to all Non-interest Financial Institutions in a bid to increase access to finance, promote financial inclusion, and revive the gross output of the economy.

More specifically, the intervention is targeted to the following schemes and sectors, namely; the Accelerated Agricultural Development Scheme (AADS), Textile, Agri-Business Small and Medium Enterprises Investment Scheme (AGSMEIS); Micro, Small and Medium Enterprises Development Fund for Non-Interest Financial Institutions (MSMEDF); Non-Oil Export Stimulation Facility (ESF); Anchor Borrowers’ Programme; Real Sector Support Facility; and Creative Industry, among others.

The broad objective of the programmes are highlighted as follows; increase in food security, reduce youth employment, encourage domestic production, and economic diversification. Predicated on this, is the significance drive of the unconventional policy thrust by the CBN.

Before the benefits are discussed, here are the brief performance highlights of the targeted sectors, following the 2020Q1 GDP report by NBS. The agriculture sector grew by 2.20% (year-on-year) in real terms, relative to 2.31% growth recorded in the corresponding year, 2019Q1. Industries and Services sector grew by 2.26 and 1.57%, respectively, relative to 2.75 and 2.60%, in that order. The contribution to real GDP is reported in Figure 1 below; Figure 1: Share of Agriculture, Industries and Services to real GDP

Source: NBS 2020

Now to the implication, despite the N1 trillion interventions to both agricultural and manufacturing sectors, of which N152.9 billion disbursed to finance 61 manufacturing projects alongside the aforementioned schemes, it is expected the effect will only pass through the third quarter of the year due to policy implementation lag. Thus, tepid growth is expected in the second quarter while gentle recovery should be expected in 2020Q3 as private investment and local production gains their stature.

While addressing the issue of youth unemployment, the scheme (Accelerated Agricultural Development Scheme) is expected to generate at least 370, 000 jobs for out of 55.4 Nigeria youths that are unemployed; an equivalent of less than 1 percent of the unemployed.

Global Report on Food Crisis (2020) statistics showed that about 5 million people in northern Nigeria leave with the food crisis, which was predominantly caused by Boko Haram insurgencies and is expected to be aggravated by the pandemic. Beyond addressing the issue of food insecurity is a bid to be self-sufficient, which was also based on The President’s Mantra, to produce what we eat, and eat what will produce. Thus, the unorthodox policy of the CBN is expected to increase access to finance and bridge the huge financial gap needed in the production process.

Furthermore, the increased access to finance as enshrined in the CBN policy is expected to aid financial inclusion (that is, accessibility of an adult within the economy to basic banking services). In Nigeria, The EFinA report on Finance Access suggests that 96.3 million out of 99.6 million Nigerians do not use or have access to mobile money services, despite teledensity of 97.4 percent in the country (NCC statistics, January 2020). Hence, this will provide low-income households with access to reasonable and suitable tools to harness economic opportunities and reduce the risk associated with the physical handling of money (for example, the virus spread). 

In terms of 2020Q1 foreign trade, a report by NBS suggests that Nigeria recorded a trade deficit worth of N138.98 billion, as the value of import exceeded export despite the 21.08 percent decrease in import relative to 2019Q4. More specifically to the sector concerned as targeted by the CBN; the value of imported Agricultural goods was 12.02 percent more in Q1 2020 relative to 2019Q4 where the main traded items include machinery, food, and live animals, beverages and tobacco, among others. Also, Solid minerals were 15.65 higher while manufacturing goods was 31.98 percent lower in 2020Q1 relative to 2019Q4. Thus, with the targeted scheme and fund disbursed into the three-sector cited alongside the health sector, it is expected that the value of importation in the medium terms fall, ceteris paribus.

Following the expected impact on the country’s foreign trade volume, we expect a marginal level of exchange rate stability in the medium term, ceteris paribus

In conclusion, based on the aforementioned developments noted by the CBN, provisional data on key macroeconomic variables showed that Nigeria’s economy may record negative GDP growth in 2020Q2, but with a careful sanguinity that the year may end in fringe negative terrain, while a strong prospect of recovery is conceived for 2021.

Olumide Olutekun holds an MSc in Economics from the University of Ibadan. He currently works as an economic research analyst.

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