Macroeconomic Report & Economic Updates

The Monetary Policy Committee of the Central Bank of Nigeria (CBN) retained the Monetary Poli-cy Rate (MPR) at 11.5 percent, as well as all other monetary parameters, at the first meeting of the Central Bank of Nigeria (CBN) for 2022, held on the 24th and 25th of January. Specifically, the Cash Reserve Ratio (CRR) was retained at 27.5 percent, the Liquidity Ratio was retained at 30 percent, and the asymmetric corridor of +100/-700 basis points around the MPR was also retained. The de-cision to retain all the parameters was aimed at supporting the existing economic growth recovery and curbing the increase in prices. However, inflation persistence in the country has continued to emanate from supply-side constraints which monetary policy may be unable to mitigate. It there-fore becomes necessary for the government to leverage fiscal policy in order to improve the ease of doing business and boost aggregate supply. Unconventional monetary policies should also be scaled up to enhance productivity in both the agricultural and manufacturing sectors. This in turn would ease the pressure on the exchange rate, which would further dampen price levels.

On behalf of the Federal Government, the Debt Management Office (DMO) issued a N250 billion sovereign sukuk bond between the 16th and 23rd of December 2021, with a 346 percent subscription rate worth over N865 billion.¹ The sovereign sukuk bond has a tenor of ten (10) years at a rental income of 12.80 percent per annum to be paid semi-annually.  An analysis of the subscription data showed more diverse participation by investors, with high levels of subscription from banks and fund managers (including pension funds), as well as non-interest financial institutions, ethical funds, cooperative societies, and retail investors. This reveals that the DMO’s objectives of issuing sovereign sukuk bonds to grow the domestic investor base and promote financial inclusion is being achieved. The agency has reaffirmed that the proceeds of the N250 billion sovereign sukuk bond will be used to continue financing the rehabilitation and reconstruction of critical economic road projects across the six (6) geopolitical zones and the Federal Capital Territory. Given its observable impact on road infrastructure in terms of job creation, travel time, safety, and movement of goods, the sukuk bond has proven to be a beneficial instrument for financing economic growth and development. If duly implemented, the projects would reduce the cost of transportation, create more access to markets, lower commodity (especially food) prices, and also improve the country’s overall business environment. 

According to the National Bureau of Statistics (NBS), Nigeria's headline inflation rate increased on a month-on-month basis, from 15.40 percent in November 2021 to 15.63 percent in December 2021¹. This represents a 1.8 percent increase, breaking an eight-month streak of headline inflation declines since April 2021. However, on a year-on-year comparison, the headline inflation rate decreased by 0.13 percent from 15.75 percent recorded in December 2020. The in-creased rate of inflation recorded in December is largely attributed to the increase in aggregate demand as a result of the festive season. Expectations are that the rate of inflation for January would decline due to lower demand levels. However, a double-digit inflation rate translates to lower purchasing power, which also translates to a lower quality of life. It is, therefore, important that policies aimed at improving aggregate supply be prioritized. This can be achieved by leveraging and scaling up the real sector intervention programs of the Central Bank of Nigeria (CBN), improving economic infrastructure to boost productivity, and improving national security to address the sub-optimality in agricultural productivity.

The Nigerian National Petroleum Company (NNPC) Limited remitted N511.7 billion to the federation account between January and October 2021, against the projected sum of N2.09 trillion, resulting in a shortfall of N1.58 trillion.³ This is according to data obtained from the NNPC. The shortfall can be attributed to two main factors: low revenue generation by NNPC limited and huge deductions. From the data, the projected revenue from January to October was N4.15 trillion whereas revenue generated was N2.77 trillion, indicating revenue shortfall of about 33.3 percent. Remittance to the federation account was plunged by deductions, which was N2.26 trillion, and represented 81.6 percent of gross revenue. The highest deduction was under-recovery of PMS/Value shortfall (subsidy), which was N1.03 trillion, and contributed about 37.2 percent of total deductions. Given the importance of NNPC limited remittance to federal account, the shortfall signals a potential crisis as most states are highly dependent on the monthly allocation from the FAAC. The situation suggests that states need to implement strategies that would boost their internally generated revenue to cover growing fiscal obligations. At the federal government level, the government should leverage on the petroleum industry act, which stipulate that petroleum subsidy ends by February 2022. With less than three months to go, the government is expected to intensify engagements with relevant stakeholders on the economic impact of petroleum subsidies and to specify how the saved funds will be used. Also, given that the subsidy removal would hurt the poor through increased transportation cost, the government is expected to design framework on how the proposed social interventions would mitigate potential welfare losses associated with subsidy removal. These interventions are expected to improve revenue available to the government for productive investments, which in turn, would bolster the rate of economy recovery from the pandemic.

The Nigerian National Petroleum Company (NNPC) Limited remitted N511.7 billion to the federation account between January and October 2021, against the projected sum of N2.09 trillion, resulting in a shortfall of N1.58 trillion.³ This is according to data obtained from the NNPC. The shortfall can be attributed to two main factors: low revenue generation by NNPC limited and huge deductions. From the data, the projected revenue from January to October was N4.15 trillion whereas revenue generated was N2.77 trillion, indicating revenue shortfall of about 33.3 percent. Remittance to the federation account was plunged by deductions, which was N2.26 trillion, and represented 81.6 percent of gross revenue. The highest deduction was under-recovery of PMS/Value shortfall (subsidy), which was N1.03 trillion, and contributed about 37.2 percent of total deductions. Given the importance of NNPC limited remittance to federal account, the shortfall signals a potential crisis as most states are highly dependent on the monthly allocation from the FAAC. The situation suggests that states need to implement strategies that would boost their internally generated revenue to cover growing fiscal obligations. At the federal government level, the government should leverage on the petroleum industry act, which stipulate that petroleum subsidy ends by February 2022. With less than three months to go, the government is expected to intensify engagements with relevant stakeholders on the economic impact of petroleum subsidies and to specify how the saved funds will be used. Also, given that the subsidy removal would hurt the poor through increased transportation cost, the government is expected to design framework on how the proposed social interventions would mitigate potential welfare losses associated with subsidy removal. These interventions are expected to improve revenue available to the government for productive investments, which in turn, would bolster the rate of economy recovery from the pandemic.