Nigeria Hit by Reversal of Portfolio Investments

The Nigerian economy continues to be resilient against fiscal and investment instability, the latest disclosure by the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC), shows that the economy has been hit by reversal of portfolio investments, resulting in a drop of Net Foreign Assets (NFA).

The Monetary Policy Committee met on 23rd and 24th March, 2015, against the backdrop of harsh external economic environment and significant risks in the domestic economy.

In attendance were eleven (11) out of the twelve (12) members, including the CBN Governor, Mr. Godwin Emefiele and Dr. O. J. Nnanna, who assumed duty as Deputy Governor (Financial System Stability) at the end of January 2015. The Committee analysed key developments in the global and domestic economic and financial conditions as well as the outlook for the rest of 2015.

Emefiele attributed the fall in NFA to the combined effects of weakening oil price and reversal of portfolio capital flows. Stressing that Net domestic credit grew by 9.89 per cent as portfolio investments dropped.

“During the period, net domestic credit (NDC) grew by 9.89 per cent in February 2015, annualised to a growth rate of 59.31 per cent, compared with a growth rate 7.89 per cent recorded in the corresponding period of 2014 and an indicative benchmark of 29.3 per cent for 2015. The credit – to – government (net) component grew sharply by 54.69 per cent relative to a decline of 21.81per cent at end – December 2014.”

The Committee noted that money market interest rates were relatively volatile in the intervening period but stabilised on average during the first two months of 2015, as banking system liquidity fluctuated. The Committee noted that the situation, though reflecting current trends globally, needed to be monitored closely.

In particular, the Committee noted that lower commodity prices were weighing heavily on output growth, especially in the oil exporting countries. In addition, expectation s of a rise in US short – term interest rates continue to fuel capital outflows and currency weaknesses in the emerging markets and developing countries.

Against the backdrop of sustained weakness in the Euro zone and softening growth in the emerging markets, global output has remained largely tapered.

Monetary, Credit and Financial Markets’ Developments Broad money supply (M2) declined by 1.70 per cent in February 2014 over the level at end – December 201 4. This translated to an annualized decline of 1 0. 23 per cent compared with the provisional growth benchmark of 15.24 f or fiscal 2015. The decline in M2 primarily reflected the contraction of 18.14 and 8.22 per cent in net foreign assets (NFA) and other assets (net), respectively, during the period.