Macroeconomic Report & Economic Updates

According to the World Bank, 7.2 million Nigerians could be pushed into poverty due to higher inflation rate and fall in purchasing power in 2020. Inflation rate rose every month in 2020 to reach a peak of 15.75 percent in December 2020.³ There are 86.8 million Nigerians currently living in poverty, and the economic situation in Nigeria means that the country may not be able to push households and individuals out of poverty in the nearest future. Food inflation is at an unprecedented level of 22.28 percent, unemployment and underemployment remains high and GDP growth rate in Q1 2021 stood at 0.51 percent in a country with a population growth rate of more than 2.5 percent. Ensuring inclusive growth process and empowering the poor, providing social protection for the poor and vulnerable, encouraging small and medium scale enterprises, and a sustained investment in education and health would alleviate poverty in Nigeria.

The value of total merchandise trade increased by 6.99 percent to N9,757.87 billion in the first quarter of 2021 when compared to the value recorded in preceding quarter.¹ The increase can be attributed to 15.61 percent increase in import and an 8.99 percent decrease in export resulting to a trade deficit of N3,943.45 billion within the review period. Furthermore, export accounted for 29.79 percent while import accounted for 70.21 percent of total trade. Major import partners were China (29.34 percent), Netherlands (10.60 percent) and United States of America (8.88 percent). Major export partners include India (16.79 percent), Spain (9.88 percent), and China (6.54 percent). The economic implication of the trade deficit implies that there is an additional pressure on the naira, leading to situations that propel currency depreciation which is inflationary. The CBN would need to put more effort in defending the naira in the foreign exchange market.

The Monetary Policy Committee (MPC) voted to retain the Monetary Policy Rate (MPR) at 11.5 percent.¹ The Monetary Policy Rate (MPR) has remained at 11.5 percent since September 2020. The committee also decided to retain the Cash Reserve Ratio (CRR) at 27.5 percent, liquidity ratio at 30 percent and the asymmetric corridor of +100/-700 basis points around the MPR. The committee’s decision to take a holding position is already being supplemented by various ongoing government intervention programmes. These programs are intended to facilitate employment generation and stimulate recovery/growth in various sectors of the economy post-pandemic particularly the agriculture and services sectors. While this decision might be suitable for now, it is important for the MPC to closely monitor the evolving economic situation in the country, especially in view of rising inflation rate and the currency devaluation.

Consumer prices decreased for the first time since August 2019, though marginally. Inflation rates decrease from 18.17 percent in March 2021 to 18.12 percent in April 2021.² The decrease in inflation rate is driven by a reduction in food component of inflation from 22.95 percent to 22.72 percent which outweighed a 0.07 percent increase in core inflation within the review period. While the decline in inflation is a good development, inflation rate in Nigeria is still on a high, and double digit which remains counterproductive for economic stability. The Nigeria’s inflation problem is primarily driven by low levels of aggregate supply due to poor productivity levels, and the volatility of the Nigerian Naira emanating majorly from the shocks in crude oil prices. The need to boost productivity remains a priority for a decline in price level. Factors that aid the increase in aggregate supply should be identified and prioritized as well.

Based on recent estimates by the World Bank, a total of $17.2 billion diaspora remittances flowed into Nigeria in the year 2020¹. This represents a decline by 27.7 percent when compared to the previous year. The decrease can be attributed to restriction of movement, lull in business activities and employment uncertainties in host countries occasioned by the COVID-19 pandemic. Also, the decrease was driven by a high premium on the Naira/USD exchange rate in informal markets, coupled with an unexpected policy directive that required agent banks of money transfer operators to effect pay-outs in US Dollars rather than the Naira. Going forward, we envisage that remittance inflows into Nigeria would improve in 2021 since host countries’ economies have begun to recover from the COVID-19 shock. Ongoing policies introduced by the central bank could also encourage increased remittances.