Macroeconomic Report & Economic Updates

Following its 287th meeting on the 26th and 27th of September 2022, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) raised the monetary policy rate (MPR) by 150 basis points from 14 percent to 15.5 percent.¹ Making it the third successive increase on the MPR in 2022 to rein in inflation. In addition, the Cash Reserve Requirement (CRR) was increased by 500 basis points from 27.5 percent to 32.5 percent. However, the Liquidity Ratio (LR) and the asymmetric corridor were retained at 30 percent and +100/-700, respectively. The increases in MPR and CRR will likely reduce the economy's liquidity and volume of money. However, the last two increments in MPR had minimal effect on the money supply. The money supply reduced from N48.9 trillion in June to N48.3 trillion in July. However, the declining trend in money supply was not interrupted, as it rose to N49.3 trillion² in August 2022, suggesting that the previous increment in MPR had weak effect on the money supply. The weak response of the money supply to changes in MPR indicates that taming the inflation rate through money supply might yield a limited impact. However, it is essential to note that excess liquidity might not be Nigeria's sole driver of inflation. Rising energy and food prices contribute partly to the soaring headline inflation. There is a need for complementary fiscal policies that would reduce the cost of production and boost domestic production. And reduce the pace of price increases and tame inflation.

In August 2022, the total net domestic credit was N61.2 trillion, increasing by 33 percent from 46 trillion in August 2021.² Net domestic credit comprises credit to the government and credit to the private sector. About two-thirds of the credit went to the private sector and the remaining to the government. In August, the total credit to the private sector rose to N40.2 trillion from N33.4 trillion in August 2021, suggesting an increase of 20.2 percent. Similarly, credit to the government rose to N33.4 trillion from N12.6 trillion, indicating an increase of 67.1 percent. The analysis shows that credit to the government grew at a faster rate compared to credit to the private sector. The growth in credit to the government is primarily due to low revenue mobilization. Consequently, the government needs to boost its revenue base to reduce its fiscal deficit and the size of loan requests from the domestic financial market. In addition, the fast growth in credit to the government is likely to crowd out credit available to the private sector. Furthermore, adequate provisions should be made to strengthen the debt management process to reduce the misappropriation of credit to the government. This can be achieved by introducing mechanisms that would promote efficient and transparent use of credit obtained by the government.

According to the National Bureau of Statistics (NBS), the prices of energy products increased further in August. The average retail price of a litre of petrol increased by 14.89 percent to N189.46 in August 2022 from N164.91 in August 2021.¹ The price of a 5kg Cylinder of Cooking gas rose by 101.17 percent to N4,397.68 in August 2022 from N 2,215.33 in August 2021². For household kerosene, the price of a litre of the product rose by 102.38 percent from N400.01 in August 2021 to N809.52³. The price of a litre of diesel rose by 209.54 percent to N786.88 from N254.21 in August 2021⁴. These increases are partly due to (i) the spike in crude oil price affecting the prices of its refined products, and (ii) exchange rate depreciation. The rate of increase was higher because the refined crude oil products were imported. High energy prices contribute partly to the country’s rising headline inflation by increasing the input costs and overall cost of production. Hence, there is a need for the government to initiate policies that can limit the rate of price increases. Fixing existing refineries and introducing incentives to attract investors to invest in modular refineries will likely boost domestic production of refined crude oil products and eliminate increases in energy prices associated with the importation of the products.

According to the National Bureau of Statistics (NBS), Company Income Tax (CIT) revenue increased in Q2 2022.¹ CIT revenue was N714.40 billion in Q2 2022, an increase of 29.53 percent on a quarter-on-quarter basis from N551.53 billion recorded in Q1 2022. On a year-on-year basis, CIT collections in Q2 2022 increased by 51.34 percent from Q2 2021. Local payments amounted to N634.01 billion (88.8 percent), while Foreign CIT payments contributed N80.39 billion (11.3 percent) in Q2 2022. The CIT revenue from local payments relative to foreign sources shows that local organisations remit more CIT payments than foreign organisations. Regarding local CIT revenues, manufacturing had the highest contribution in the period under review with 27.6 percent, followed by information & communication with 24.6 percent, and financial and communication with 15 percent. The rising CIT revenue is a positive development, as it contributes to non-oil revenue, which will help move the country’s dependence on oil revenue as the mainstay of the economy. Furthermore, this increase in CIT revenue can partly be attributed to the continuous utilisation of the recently implemented TaxPro Max (digital tax payment platform), a digital tool Federal Inland Revenue Services (FIRS) developed to enhance the digitalisation of filing of taxes and transaction convenience. Hence, the coverage and awareness of the platform need to be strengthened, as digitalisation of tax administration is key to efficient and effective tax collection, as it is more convenient and transparent and makes monitoring easier

Nearly one year after the launch of the eNaira project, the governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, at the Grand Finale of the eNaira Hackathon, announced the commencement of the second phase of the project¹. In October 2021, the CBN introduced the eNaira wallet to enhance financial inclusion. As of August 2022, the eNaira wallet has been downloaded about 840,000 times, with around 270,000 active wallets (including over 252,000 consumer and 17,000 merchant wallets) created. Moreover, there have also been over 200,000 transactions valued at N4.4 billion on the platform. The second phase aimed to improve financial inclusion by enrolling the unbanked and underserved through offline channels. With the eNaira wallet, Nigerians can conduct transactions on their mobile phones by using the Unstructured Supplementary Service Data (USSD) code*997. For a population with over 50 million active bank accounts, the registration for the eNaira wallet is relatively low in proportion to the country’s economic size. Therefore, it is imperative for CBN to collaborate with fintech organisations in planning and organising events targeted at securing the masses’ confidence in the eNaira. Consequently, the downloads and registration on the platform should increase with improved confidence and clarity on the advantages of using the wallet. Hence, an appropriate private sector collaboration could also ensure wider acceptance of the eNaira for economic activities.