The Nigerian economy has been busy in the past week, from the foreign trade report, to the guidelines on currency swap deal with the People’s Republic of China, etc. Nairametrics presents a review of the Nigerian economy in the past week and what to expect this new week.
1. Foreign Trade Report
The National Bureau of Statistics (NBS) on Wednesday released the Foreign Trade in Goods Statistics for the first quarter of 2018. The report reveals that Nigeria’s total foreign trade was ₦7,211.61 billion for the first Q1 2018, and grew by 19.74% from Q4 2017 and 35.07% year on year. Total import value stood at ₦2,518.26 billion, growing by 19.22% from Q4 2017 and 8.04% year on year. Total exports was ₦4,693.34 billion with a growth of 20.02% from last quarter and by 56.01% year on year.
2. Guidelines for Nigeria-China Currency Swap Deal
The Central Bank of Nigeria (CBN) on Thursday released guidelines for the recently signed bilateral currency swap between Nigeria and China.
The new swap agreement will see both nations make available liquidity, in their respective currencies, for the facilitation and promotion of trade and investment, through the purchase, sale and subsequent repurchase and resale of Chinese Yuan against the Naira, and vice versa.
The CBN will conduct a bi-weekly Renminbi bidding session and sales are applicable to only trade-backed transactions.
3. Federal Government Rakes in N30B from VAIDS
During the week, Federal Inland Revenue Service (FIRS) said that the Voluntary Assets and Income Declaration Scheme (VAIDS) policy has raked in about ₦30 billion from previous tax defaulters.
FIRS disclosed that through the VAIDS amnesty window, the number of Nigerians paying taxes has increased from 14 million to 19 million. It also noted that it collected 90% of the amount, while states collected the balance of 10%.
4. Customs Generates N100.1B in May
The Nigeria Custom Service (NCS) on Thursday disclosed that it reached a milestone in May 2018, by generating the highest ever monthly revenue with the sum of N100.1 billion. NSC added that it believes the feat will continue since the blocking of leakages will continue at its current high rate. However, NSC also requested for the upward salary review for officers and men of the service who are working hard to raise revenue generation.
5. FG Approves Review of Tax Policies
The Federal Executive Council (FEC) on Wednesday approved the National Tax Policy Implementation Committee on Nigeria’s Tax Law Reform. The new policies will, among others, entail VAT exemption for life insurance, public transportation, residential buildings, etc., while taxes on SMEs will now be reduced from 20% to 15%.
The five proposed amendment bills are Companies Income Tax Act (Amendment) Bill, Value Added Tax Act (Amendment) Bill, Customs, Excise, Tariff ETC (Consolidation) Act (Amendment) Bill, Personal Income Tax Act (Amendment) Bill, and Industrial Development (Income Tax Relief) Act (Amendment) Bill.
6. FG Generates 7.8b from Privatisation of Public Assets
The sum of $7.8 billion Foreign Direct Investment (FDI) was attracted by the Bureau of Public Enterprise (BPE) through the sale of 53 public enterprises in the last 18 years. The agency has privatised, commercialised, or concessioned a total of 142 public enterprises since 2019 till date. BPE further said That some assets are on the card for privatisation which include privatisation of Afam power plant, re-privatisation of Yola Disco, concessioning of “B” Terminal of Old Warri Port, re-concesion of Lagos Trade Fair, Partial commercialisation of the six River Basin Development Authorities, etc.
7. Foreign Reserves Drop
The nation’s external reserves stood at $47,472,550,210 on Monday, June 4, 2018, but fell to $47,452,170,010 on Tuesday, June 5, 2018 and further dropped to $47,436,780,844 on Wednesday and currently stand at that figure.
Expectations this week
NBS is expected to release the Sectoral Distribution of VAT in Q1 2018 on Monday. Also, on Wednesday, NBS will release the Automotive Gas Oil (Diesel) Price Watch for May.
Other reports expected to be released by NBS on Wednesday include Liquefied Petroleum Gas (Cooking Gas) Price Watch for May 2018, National Household Kerosene Price Watch for May 2018, Premium Motor Spirit (Petrol) Price Watch for May 2018, Premium Motor Spirit (Petrol) Price Watch for May 2018, Consumer Price Index (CPI), and Inflation Report for May 2018.
Also, the last report that will be released by NBS will be the Selected Food Prices for May 2018 on Friday.
Lastly and most importantly, President Muhammadu Buhari may sign the N8.6 trillion 2018 budget any moment from now – which may be this week. The budget was presented to the National Assembly on November 7, 2017, but it was increased and the sum of N9.12 trillion was approved by both chambers last month.
MPC recommends CBN increase lending to government via Ways and Means
The MPC urged the CBN to increase its lending to the government as it believes it will help reflate the economy from its recession.
The Monetary Policy Committee has urged the Central Bank of Nigeria to increase its lending to the government via Ways and Means as it believes it will help reflate the economy from its recession.
This is contained in a recent communique from the first Monetary Policy Committee (MPC) meeting concluded on Tuesday, 26th January 2021.
According to the report, the committee considered the broad-based global stimulus packages introduced by the apex banks of different countries to support their economic recovery in the face of the Covid-19 pandemic.
Some of the stimulus packages noted by the MPC include; expanded credit lines, asset purchase programme, corporate bond purchase, additional funding facilities for the financial system, commercial paper purchases, special central bank lending, and increase in Ways and Means limits.
What you need to know
- Recall that Nairametrics reported that the Federal government borrowed a total of N2.8 trillion via Ways and Means from the CBN in 2020 due to the FG’s failure to meet its revenue targets as a result of the impact of the crash in global oil prices and the covid-19 pandemic.
- However, the MPC noted the large stimulus packages deployed by other countries to quicken their growth recovery. Notably, the report stated that Japan provided stimulus packages valued at 66% of its 2019 GDP, UK (45.04%), USA (28.4%), Brazil (27.6%), South Africa (12.6%).
- Also, China deployed 11.5% of its GDP, India (10%), Russia (7.1%) as against Nigeria’s 4%.
- It is worth noting, that the Ways and Means financing was brought to public view in 2016 by the former CBN Governor, Lamido Sanusi after he accused the government of contravening the CBN Act by borrowing more than the required 5% of the prior year revenue.
- While in 2020, the government borrowed 62.2% of its 2019 revenues of N4.5 trillion.
- Also, recall that the budget deficit of N5.6 trillion from the total N13.58 trillion signed by the president is expected to be mainly financed by domestic and foreign borrowings, despite debt stock hitting N32.2 trillion as of September 2020.
The MPC, therefore, urged the Apex Bank to further expand its current stimulus packages to support the fiscal interventions to reflate and boost recovery in the economy.
In order to improve revenue, the MPC also called on the government to take advantage of the take-off of the African Continental Free trade Area (AfCFTA), as it believes it could boost domestic production and generate sizeable revenues for the government.
With the decline in government revenue, due to the crash in oil price and disruption caused by the Covid-19, it is practically impossible for the government to fund its expenditure for the year without borrowings. Hence the need for the CBN’s support loans.
Covid-19: No more lockdown, CBN advises government
Despite rising Covid-19 cases, the CBN MPC encourages government to avoid locking down the economy again.
The Central Bank of Nigeria (CBN) encouraged the Federal Government of Nigeria to avoid locking down the economy again as the second wave of Covid-19 causes an increase in confirmed cases and more deaths.
The apex bank cited the negative impact of another lockdown on the economy as a major concern suggesting that sustaining the tepid economic recovery was perhaps a higher priority than curtailing the fast-spreading variant of the second wave virus via another lockdown.
The remarks were contained in the monetary policy communique read out by the central bank governor Godwin Emefiele following the end of the bank’s monetary policy committee meeting, the first for the year.
“While expressing understanding of the public health dilemma of the recent spike in infections, MPC encouraged Government not to consider a wholesome lockdown of the economy so as not to reverse the current gains of the stimulus earlier provided in 2020.” Emefiele
As of January 26, 2020, Nigeria had a total number of Covid-19 cases of about 124, 299, and 1,522 deaths as the second wave continue to spread rapidly across the country. Since December 1st, Nigeria’s positive cases have risen by about 56, 742 cases (83% ) from about 67,557 on the last day of November 2021.
However, the central bank’s recommendations are hinged on the precarious state of the economy which is highlighted throughout a rather sobering MPC communique. In one statement the apex bank admitted that the rise in covid-19 cases was dragging economic recovery backward as more Nigerians become wary of socializing but the spate of economic recovery cannot be jeopardized.
According to the CBN “the outlook for the recovery, however, appears to be dampened by the second wave of the pandemic considering its intensity” yet it still maintained that the previous lockdown was the trigger for another recession.
“In the Committee’s consideration, it noted that the COVID-19 pandemic and the necessary measures put in place by the Government to forestall its public health impact, such as the lockdown and other associated restrictions, contributed to the Nigerian economy going into recession, much like almost every other country in the world.”
CBN Paints a gloomy picture of the economic recovery
The members of the monetary policy committee also detailed challenges to economic recovery being experienced by the country such as higher inflationary rates, weak PMI numbers, and an increase in non-performing loan ratios of commercial banks.
On increase in non-performing loans
“The Monetary Policy Committee (MPC), however, noted the marginal increase in the Non-Performing Loans (NPLs) ratio which rose to 6.01 percent at end-December 2020 from 5.88 percent at end-November 2020 and above the prudential maximum threshold of 5.0 percent. While noting that this development is not unexpected under the prevailing circumstances, it urged the Bank to strengthen its macroprudential framework to bring NPLs below the prescribed benchmark.”
On PMI numbers
The MPC noted with concern the continuing sluggish recovery in the Manufacturing and Non-Manufacturing Purchasing Managers’
Indices (PMIs), which remained below the 50-index point benchmark in December 2020, at 49.6 and 45.7 index points, respectively, compared with 50.2 and 47.6 index points during the previous month. This weak performance was attributed to the resurgence of the pandemic, foreign exchange pressures, increased costs of production, general increase in prices and decline in economic activities.
This uptick was attributed to the increase in both the food and core components of inflation, which rose to 19.56 and 11.37 percent in December 2020, respectively, from 18.30 and 11.01 percent in November 2020. This continued upsurge in food inflation was attributed to the logistical bottlenecks, spurred by the increasing security challenges in many parts of the country, which disrupted food production and supply to the market. Other factors driving the core inflation, include the recent deregulation of the downstream sector of the oil industry, which led to hikes in the price of Premium Motor Spirit (PMS) and the upward adjustment in electricity tariff.
What this means
As the economy slowly recovers from the Covid-19 induced lockdown, several of our major indicators still show there is trouble ahead. These 3 indicators are some of the most telling.
- Higher non-performing loans, though expected are symptomatic of what businesses are currently going through as they strive to improve their balance sheet. With weaker sales and piling inventory most businesses will continue to struggle to meet up with their debt obligations increasing the number of non-performing loans in the country.
- The Purchasing Managers Index is a critical bellwether for predicting when Nigeria gets out of the recession. As a compilation of how businesses are fairing, an index below 50 suggests we are far from a V-shaped recovery and could face a longer wait to get out of the current recession.
- Nigeria’s galloping inflation rate and economic contraction have created stagflation that puts the economy in a rather precarious situation. Much of the causative factors for the rising inflation are outside of the control of the CBN suggesting a higher inflation rate could persist in the coming months.
- The CBN indicates we could get out of higher inflation rates later this year, but not before it hit its peak as we expect the cost of goods and services to keep rising.
Despite the gloomy picture, the CBN expects the economy to recover this year provided the country continues with its economic stimulus.
Available data and forecasts for key macroeconomic variables for the Nigerian economy suggest further improvement in output
growth in the first quarter of 2021. This would be supported by the coordinated and sustained interventions of the monetary and fiscal authorities, including the broad-based stimulus and liquidity injections.
But to ensure its optimistic outlook for the economy comes through, the CBN is recommending that more efforts should be geared towards acquiring and distributing vaccines rather than shutting down the economy.
“Members thus agreed that the Committee’s current priority remains to quicken the pace of the recovery through sustained and targeted spending by the fiscal authority supported by the Bank’s interventions. In this light, it was thought necessary to increase collaboration with the fiscal authority by providing complementary spending to finance productive ventures in a bid to improve aggregate supply and reduce prices. This is in addition to effectively collaborating with the Presidential Task Force on COVID-19 through the existing private sector Coalition against COVID-19 (CACOVID) to procure and distribute vaccines to fast-track the pick-up of business activities and economic recovery.”
IMF optimistic about global economy but warns new Covid variants could affect recovery
IMF is quite optimistic about the fortune of the global economy but expressed fear that the new Covid variant could derail economic recovery.
The International Monetary Fund (IMF) has expressed optimism about the global economy but warns that the new COVID 19 variant could affect the global economic growth, according to its latest World Economic Outlook.
According to the report, “the institution now expects the global economy to grow 5.5% this year — a 0.3 percentage point increase from October’s forecasts. It sees global GDP (gross domestic product) expanding by 4.2% in 2022”.
According to its Chief Economist, Gita Gopinath:
- “Much now depends on the outcome of this race between a mutating virus and vaccines to end the pandemic, and on the ability of policies to provide effective support until that happens.
- “There remains tremendous uncertainty and prospects vary greatly across countries.
- “China returned to its pre-pandemic projected level in the fourth quarter of 2020, ahead of all large economies. The United States is projected to surpass its pre-Covid levels this year, well ahead of the euro area.
- “Policy actions should ensure effective support until the recovery is firmly underway, with an emphasis on advancing key imperatives of raising potential output, ensuring participatory growth that benefits all, and accelerating the transition to lower carbon dependence.”
What you should know
- There has been a surge in the number of reported cases of the new variant Covid-19 infections and deaths over the past few months.
- The new variant has been described as being more infectious and potentially deadlier than the original strain.
- The IMF had cut its GDP forecasts for the euro zone this year by 1%.
- It is being projected that the 19-member region, which has been severely hit by the pandemic, would grow by 4.2% this year.
- Germany, France, Italy and Spain — the four largest economies in the euro zone — also saw their growth expectations cut for 2021.
- Economic activity in the region slowed in the final quarter of 2020 and this is expected to continue into the first part of 2021. The IMF does not expect the euro area economy to return to end-of-2019 levels before the end of 2022.
- IMF revised its GDP forecast upward by 2% points on the back of a strong momentum in the second part of 2020 and additional fiscal support, with GDP expected to grow to 5.1% this year.