Macroeconomic Report & Economic Updates

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.

According to the National Bureau of Statistics (NBS) latest report on Value-Added Tax (VAT), there was a 17.8 percent year-on-year increase in VAT revenue in Q3 2021. However, on a quarter-on-quarter basis, there was a 2.3 percent decrease.¹ VAT collected in Q3 2021 was N500.4 billion. This was lower than the VAT revenue generated in Q2 2021 which stood at N512.3 billion. In Q3 2020, VAT was N424.7 billion. The quarter-on-quarter decline in VAT collection was mainly caused by the sharp decline in non-import (foreign) VAT, which contracted by 60.9 percent, thereby eroding the increase recorded in non-import (local) VAT and Nigeria Customs Service (NCS) Import VAT, which both grew by 57.6 percent and 5.7 percent, respectively. The increase in the non-import (local) VAT indicates that the recent debate on who has the constitutional right to collect VAT has minimal impact on total VAT collection. Further, the year-on-year increase in VAT also reflect a growth in economic activities. The current fiscal position of the government suggests that all available revenue sources are maximized. Therefore, in order to optimize revenue generated from VAT, it becomes imperative that the coordination issue associated with VAT collection is addressed.

The World Bank, at the launch of November 2021 edition of Nigeria’s Development Update discussed the state of Nigeria’s economy and made several policy recommendations. One of the notable suggestions was that of fixing the exchange rate policies in the country. According to the report, the existence of parallel rates in the foreign exchange market is one of the drivers of inflation in the country, which has pushed about 8 million Nigerians into poverty since 2020. The bank recommended that to curb inflation in the economy, exchange rate management ought to be predictable and flexible, thus, emphasise the need to have a uniform exchange rate. Given the administrative goal of lifting 100 million Nigerians out of poverty by 2030, it is imperative to address high inflation rate by introducing policies that would bring the rate below a single digit. The unification of the exchange rate might be important in achieving lower inflation by reducing arbitrage in the foreign exchange market. However, persistent shortage of foreign exchange due to low export earnings posits a challenge to effective management of the foreign exchange. Hence, there is a need for the government to support firms operating in the country in terms of simplifying export regulations and making credits available for firms to expand their scale of operation and the quality of their products to gain traction in the global market, thereby increasing export earnings.