World Economy

Nigeria Gov’t Steps In as CB Says Can’t Bolster Growth

Nigeria Gov’t Steps In as CB Says Can’t Bolster GrowthNigeria Gov’t Steps In as CB Says Can’t Bolster Growth

Nigeria’s government is looking to spend its way out of an economic slump after its own central bank said it can’t bolster growth and is instead targeting inflation with a record interest rate.

The government is planning 1.75 trillion naira ($5.6 billion) in capital spending for the year, more than four times the amount spent in 2015, according to information from the budget office. The state has spent 248 billion naira so far, the presidency said on Aug. 1. Nigeria intends to borrow from abroad to help plug its 2.2 trillion naira budget gap and make more funds available for capital investments, Finance Minister Kemi Adeosun told lawmakers last month, Bloomberg reported.

“It’s up to fiscal policy to soften the downturn,” Yvonne Mhango, a Johannesburg-based economist at Renaissance Capital Ltd., said in an e-mailed response to questions. The Monetary Policy Committee “suggested that there was not much it could do to avert a recession.”

Africa’s largest economy will probably contract for the first time since 1991 this year as oil output slumped amid militant attacks on pipelines and foreign-exchange restrictions led to shortages of imported goods, including fuel. The central bank lacks the instruments needed to directly jump-start growth and the government should fast-track the implementation of the 2016 budget to stimulate the economy, Governor Godwin Emefiele said when he announced on July 26 the monetary policy rate will be increased to the highest in at least nine years.

The MPC raised its key rate by 200 basis points to 14% to curb inflation that accelerated to 16.5% in June, the highest since October 2005, and prop up the naira. The local currency lost over a third its value since the central bank removed a peg of 197-199 per dollar after more than a year. The economy shrank by 0.4% in the first quarter and may contract 1.8% this year, according to the International Monetary Fund.

When President Muhammadu Buhari presented a record budget of 6.1 trillion naira in December, the government targeted economic growth of 4.37% this year. A four-month delay in approving spending plans exacerbated the strain on output as a slump in oil prices and production caused a revenue squeeze. The economy expanded 2.7% last year, the slowest in 20 years, according to IMF data.

Higher borrowing costs would signal a desire to gradually achieve positive real interest rates and help Nigeria tap international capital markets, Emefiele said last month.