BY LAZARUS IBEABUCHI

Nigeria’s economy will witness continued downturn in the second half of the year due to the Central Bank of Nigeria’s, CBN’s, decision to reduce the amount of money in circulation to checkmate inflation, said Mr. Wale Abe, Executive Secretary, Financial Market Dealers Association of Nigeria, FMDA.

Abe, who was speaking at the Finance Correspondent Association of Nigeria, FICAN, roundtable on the economy in Lagos, with the theme, ‘Monetary and Fiscal Policy in Half year 2012 and the Impact on the Economy,’ said the CBN’s action will hamper the flow of money to the real sector of the economy, as most of the funds will now go into the purchase of government securities.

He said, “The main issue is not the increase in the price of food, but structural imbalance in system. These include power shortage, difficulty in moving agricultural products from the North, among others. The CBN has found an antidote by denying the system liquidity.”

“What we have seen within the last six months of the year is that the Central Bank has kept the monetary policy rate at 12 per cent. At the beginning of the year, the CBN said in other to tackle inflation, it would tighten liquidity in the open market operation, OMO. And throughout the six month, MPR has been kept at 12 percent.

“What is most important is that there must be stability in the macro environment. To a large extent, CBN has been able to achieve that but with a very high cost to the economy.  First of all, our economy needs to grow and what has been denied this economy is growth. Forget the indicators in terms of GDP being at 7 per cent.

“Of cause, what has happened globally has negatively affected growth. Based on the fact that the US economy, the Euro zone and Greece are experiencing recession, in terms of export and import relationship, we discover that Nigeria is an importing economy, and Nigeria economy relies basically on crude oil. So what affects the global market will also have an impact on Nigeria’s economy.

“Crude oil price has been sliding. So the government is borrowing more to finance its activities. Given the challenge, if crude oil falls further, government will have no alternative but to borrow more,” he said.

In terms of fiscal policy, he said that trillions are budgeted each year for capital budget, but in reality, despite the huge amount spent, roads are still bad, power supply so poor, social infrastructure are on the decline, unemployment rate is increasing and many of those employed are grossly unemployed.