Central Bank of Nigeria
1
GLOBAL FINANCIAL AND ECONOMIC CRISIS:
HOW VULNERABLE IS NIGERIA?
Prof. Chukwuma C. Soludo, CFR
Governor
Central Bank of Nigeria
JANUARY, 2009
Central Bank of Nigeria2
I.
Introduction
II.
Causes of the Crisis
III.
Impact of the Crisis on Global and National
Economies
IV. Global and Country Responses
V.
Impact on the Nigerian Economy
VI.
Response by Nigeria
I.
Exchange Rate Adjustment as Key Shock
Absorber
VII. Threats, Opportunities, and the Road Ahead
VIII. Concluding Remarks
OUTLINE
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1. Introduction
n Current Global Crisis started as a ‘financial crisis’
but now a ‘Global Economic Crisis’
n The crisis is unprecedented in severity of credit
contraction (credit crunch & capital crunch).
n The roots are in banking rather than in
securities market or foreign exchange.
n The Crisis started in the U.S (due to certain
laxities in the US financial system), spread to
Europe, and has become global. Even
countries not affected by the financial crisis are
now affected by ‘second-round effects’ as the
crisis now becomes ‘economic’.
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• The financial crisis started in the U.S in August
2007 with sub-prime mortgage crisis as households
faced difficulties in making higher payments on
adjustable mortgages.
• By the first quarter of 2008, there was widespread
"credit contraction,” as financial institutions in the
US tightened their credit standards in light of
deteriorating balance sheets.
• By
the
fourth quarter of 2008,
increased
delinquency rates affected not only sub-prime
loans but also spilled over into consumer and
other credits.
Introduction……
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Introduction…..
• Credit Squeeze
• Reduced lending to the real sector (supply side)
• Reduced household demand (demand side)
• Wealth Effect
• Decreasing asset values (e.g., stocks and real
estate) led to a loss of consumer confidence and
a precipitous decline in consumption; these
translated
into sharp decline
in economic
activities
• Job Losses
• Decrease