Macroeconomic Report & Economic Updates

According to Telecommunications Sector Data for the second quarter (Q2) of 2022, released by the National Bureau of Statistics (NBS), Nigeria's telecoms sector experienced a growth in both voice and internet subscriptions.³ The total number of active voice subscribers in Q2 2022 was 206.4 million, representing a 10.04 percent increase from 187.6 million subscribers in Q2 2021. Similarly, in terms of internet subscriptions, 151.3 million subscribers were recorded in Q2 2022, from the 140.2 million reported in Q2 2021. This indicates a growth rate of 7.96 percent on a year-on-year basis. An increase in active voice and internet subscribers will likely lead to increased transactions through digital platforms. In addition, the growth in subscribers suggests that for businesses, having an online presence is an excellent strategy to expand the reach of their products. In other words, businesses are no longer limited to physical stores alone. The increase in the number of subscribers also indicates that the digital economy's contribution to the overall economy will continue to increase over the next few years. A way for the government to support the expansion of the digital economy is to address the issue of unreliable electricity supply. The unstable electricity supply makes network providers rely primarily on generators to power their equipment, thereby increasing their operating costs and the cost of doing business via the internet.

Data from the Central bank of Nigeria (CBN) shows that Nigeria's external reserves dropped to $37.9 billion as of Wednesday, October 12, 2022, from $38.8 billion on September 12 2022.¹ The decline is due to CBN's continuous intervention in the exchange rate market and dwindling export earnings. There has been an increase in the demand for foreign exchange for importing inputs and finished products. Likewise, there has been a rise in the number of Nigerians moving to other countries for studies and work. These result in a demand-supply deficit pushing the exchange rate to an all-time high at different windows. The CBN has been intervening to minimise the rate of increase, leading to a trend of steady declines in foreign reserves since the beginning of September 2022. While it is prudent to intervene by pumping more forex from the external reserve, it is also essential, for sustainability, that government strive to boost export earnings to ensure more accretion into the reserve. As a result, the government needs to strengthen reforms to increase non-oil exporting firms' productivity and competitiveness in the international market.

The Organization of Petroleum Exporting Countries (OPEC), alongside OPEC+, cut crude oil output by two million barrels per day (mb/d) to achieve market stability². As a result, Nigeria’s oil output quota for November 2022 was reduced by 4.6 percent from 1.826 mb/d in August 2022 to 1.742 mb/d. This measure comes following the downward movement in crude oil prices. This cut follows several consecutive months of an increase in Nigeria’s oil output quota, which the country has continuously failed to meet due to vandalism, oil theft, low investment, and ageing infrastructure. The failure of the country to meet the OPEC quota also suggests the country had benefited little from the increase in global crude oil prices in the first half of the year. Without significant improvement in domestic production, there is a high likelihood that the production level would still be lower than the new quota level. Hence, there is a need to address structural factors such as insecurity that have contributed partly to the country’s low crude oil production. The Nigerian National Petroleum Company (NNPC) Limited needs to develop a roadmap to improve the security around the pipelines to tackle vandals, prevent oil bunkering, and attract investment into the industry.

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.