Macroeconomic Report & Economic Updates

sector

According to the data on credit allocation by sector released by the Central Bank of Nigeria (CBN), Deposit Money Banks (DMBs) 's allocation to the agricultural sector rose to approximately N1.458 trillion in December 2021 from N1.049 trillion recorded in December 2020.¹ This represents a 38.88 percent increase year-on-year. The CBN's development financing initiatives, including the Anchor Borrowers' programme, which involves DMBs in funds disbursement to farmers, partly drove this increment in credit allocation to the agricultural sector. The challenge of lack of access to credit facilities to purchase improved seedlings and modern facilities lowers agricultural productivity and contributes to food insecurity. The high food inflation (above 15 percent in 2021)² indicates the persistence of food shortages, which might be attributable to non-financial factors constraining production, such as insecurity and poor road networks connecting farmlands. Addressing food shortages and achieving low food inflation requires a combination of financial and non-financial interventions from the government. First, the government needs to sustain initiatives that increase farmers' access to finance and partner with the private sector to unlock innovative agricultural financing tools. Second, the government needs to guarantee farmers' security and construct more roads connecting farmers to the markets. 

The International Monetary fund (IMF), in its April 2022 Economic Outlook, has revised its growth projection upward for the Nigerian economy in 2022 to 3.4 percent.¹ The IMF had earlier forecasted a 2.7 percent growth for the Nigerian economy in 2022, suggesting an increase of 0.7 percent point. Also, the forecast for 2023 was revised upward from 2.8 percent, indicating an increase of 0.4 percent point. Despite the upward revision, Nigeria’s growth forecast still lags behind the Sub-Saharan growth rate of 3.8 percent and the world growth rate of 3.6 percent. The forecast for Sub-Saharan Africa was revised upward by 0.1 percent point, and the world was revised downward by 0.8 percent point. The Fund expected that the sanctions imposed on Russia would disrupt the global value chain, resulting in a slow global economic growth rate. The upward revision for Nigeria was premised on the surge in crude oil prices, putting Nigeria in a beneficial spot for the Russian invasion of Ukraine. In other words, the forecast suggests that the Fund anticipates that Nigeria would optimise the oil revenue gains associated with the invasion. There is a need for the Nigerian government to match the positive image of the Fund by reforming the Nigerian oil and gas sector to address legacy issues that have adversely affected investment in the sector and resulted in low production levels.

Based on the ravaging effects of the covid-19 pandemic, the 2021 Budget sought to reposition the Nigerian economy towards recovery, growth and resilience. The latest 2021 budget implementation report, the third quarter, released by the budget office of the federation (BOF), shows that the actual net revenue in the quarter was ₦1.93 trillion, and 8.3 percent less than the budgeted net revenue of ₦2.11 trillion.² Of the ₦1.93 trillion revenue generated, non-oil contributed 65 percent, and the remaining came from oil revenue. The low contribution of oil revenue was due to fiscal deductions and federally funded upstream projects. The actual amount for both items is higher than budgeted and constitute about 65 percent of the initial oil revenue of ₦1.3 trillion, resulting in net oil revenue of ₦674.3 billion. On the expenditure side, actual expenditure in the quarter was ₦3.78 trillion, which is higher than the budgeted expenditure of ₦3.13 trillion by ₦654.96 billion. The high variation in expenditure arises from debt service. The budgeted debt service was ₦831.1 billion in the quarter, and the actual debt service was ₦1400 billion, indicating a variation of about ₦568.9 billion. As a result, debt services constitute about 37 percent of total expenditure in the third quarter. The relative size of the debt service in total expenditure and the low ratio of revenue to total expenditure indicates weak revenue collection. While the final budget implementation report for the whole of 2021 is being anticipated, efforts toward improving the country’s revenue generation in 2022 are urgently expedient. Specifically, the ease of tax payment through digitalization would strengthen revenue collection and increase tax revenue.

Data from the Central Bank of Nigeria shows that as of April 8, 2022, external reserves were $39.66 billion.¹ This indicates an increase of about $122 million from $39.54 billion recorded on April 1, 2022, but still lower than $39.79 billion recorded on March 8, 2022, and $40.5 billion at the commencement of the year. External reserves are used to settle external obligations, import payments, and manage the exchange rate. The relative improvements in the external reserves are partly due to the recent $200 billion in foreign exchange repatriation (RT200FX) policy of the CBN and the hike in crude oil prices. For a country with an average monthly import bill of $4.3 billion in 2021, the current external reserves cover about 9.1 months of import bills, which puts pressure on the domestic currency. The government needs to sustain existing non-oil export promotion strategies and payments through the official channels to improve export earnings, and external reserves. Furthermore, improvement in business environments through reliable electricity would help reduce the cost of production and make Nigerian products price competitive in the global market.

The latest foreign trade data by the National Bureau of Statistics (NBS) shows that in 2021 Nigeria imported N1.29 trillion worth of durum wheat.² An increase of 71.1 percent over the N756.92 billion recorded in 2020 and more than triple the N401.31 billion recorded in 2019. Wheat is the third most consumed grain in Nigeria after Maize and Rice. The product was the second-highest contributor to Nigeria's import bill in the review year and the highest imported food item, accounting for 6.2 percent of the total import bill. The increase in the value of wheat importation reflects the high unmet demand for wheat in the domestic market. In the meantime, the recent invasion of Ukraine by Russia has affected the wheat supply chain globally, pushing prices of wheat to record highs. The current happening suggests that the demand for wheat produced in Nigeria would increase from firms within and outside the country. Before the invasion, the Central Bank of Nigeria (CBN) created the Nigeria Brown Revolution to reduce Wheat importation by 35 percent in 2022. And as of November 2021, the CBN had disbursed N41.2 billion under the Revolution to improve funding of large wheat production.³ Aside from funding, the Bank also needs to strengthen partnerships with the Bank of Agriculture and the Ministry of Agriculture to address the non-financial challenges that lower wheat farmers' productivity. Through the partnerships, wheat farmers should be coordinated and introduced to farming techniques, efficient post-harvest storage facilities, and modern extension services. These partnerships and interventions should help in boosting local production and make the country a net exporter of wheat within the next few years.