Macroeconomic Report & Economic Updates

Data released by the National Bureau of Statistics revealed a decline in total disbursements from the Federation Account in 2020. The Federation Account Allocation Committee (FAAC) disbursed N4.79 trillion¹ to the federal and state governments in 2020, whereas, a total sum of N5.4 trillion was disbursed in the preceding year 2019, representing a 13% decline. Further disaggregation shows that the federal and state governments received N2.49 trillion and N2.3 trillion respectively in the period under review. Delta and Akwa-Ibom states were the biggest beneficiaries, receiving the highest allocations of N186.83 billion and N146.27 billion respectively, while Osun and Cross River states received the least allocations of N30.63 billion and N32.89 billion respectively. The overall decrease in disbursements is an indication of a dip in total revenue sourced during the year. The COVID-19 pandemic negatively affected global oil sales, which is the country’s main source of revenue. This therefore calls for increased commitment and intervention programs to diversify the economy, and reduce the country’s vulnerability to oil price shocks. Domestic revenue mobilization efforts also need to be intensified.

The International Monetary Fund (IMF) projects that Nigeria’s fiscal balance is estimated to increase considerably. More specifically, general government deficit is projected to widen from 4.8 to 5.9 percent of GDP between 2019 and 2020.¹ Also, public debt is projected to increase substantially to 34 percent of GDP in 2020 from 29.1 percent in 2019. The increase in government general deficit can be attributed to sharp revenue declines occasioned by the pandemic. Although revenue could increase given the increase in the Value Added Tax (VAT) rate from 5 to 7.5 percent in 2020, and expenditure savings from the removal of power sector and fuel subsidies, the concurrent increase in expenditure related to COVID-19 emergency support will drive the widening fiscal deficit. However, as domestic activities recover to pre-COVID levels and spending on household and businesses vulnerable to the pandemic tapers down, the fiscal deficit is projected to narrow in 2021.

Based on the recently released Corruption Perception Index (CPI) ¹, Nigeria is still perceived to be among the most corrupt nations, with a ranking of 149 out of the 180 countries assessed – a higher ranking is indicative of higher corruption. The CPI is based on a scale of 0 to 100; with zero representing extreme corruption and 100 indicating least level of corruption. Nigeria’s CPI score reduced slightly from 26 in 2019 to 25 in 2020², while its ranking worsened, falling from 146 to 149. The increase in perceived corruption may be partly attributable to the reports by civil society organisations on the hoarding and mis-management of COVID-19 palliatives and related supplies. It is therefore imperative that anti-corruption policies are enforced to boost the public trust; as this can affect domestic and foreign direct investments.

Data from the National Bureau of Statistics (NBS) shows an overall increase in tax revenues for 2020. Total revenue generated from Value Added Tax (VAT)¹ and Company Income Tax (CIT)² stood at approximately N2.94trillion, representing a 5% increase from N2.81trillion reported in prior year. However, although the net revenue showed growth, only VAT receipts increased year-on-year by 29%, whereas, CIT revenue decreased by 13%. The professional services sector was the biggest contributor to both VAT and CIT receipts, while mining and textile/garment industry generated the least VAT and CIT revenues respectively. Considering the economic circumstances during 2020, the slight growth in tax revenues is a positive indicator. It is important for tax policymakers to continue monitoring the effectiveness and impact of ongoing tax reforms on the economy.

According to data from the National Bureau of Statistics (NBS), a 0.28% month-on-month increase in the average price of Automotive Gas Oil (diesel) was recorded as the price in December 2020 increased to N224.37 from N223.74 in November 2020¹. Similarly, the average price for the refilling of a 5kg cylinder for Liquefied Petroleum Gas (Cooking Gas) has increased by 0.12% month-on-month to N1949.75 in December 2020 from N1947.47 in the previous month². The results were similar regarding the refilling of a 12.5kg cylinder with a 1.75% month-on-month increase. Contrarily, the average price paid by consumers for premium motor spirit (petrol) decreased month-on-month by -0.94% to N165.70 from N167.27 in the previous month³. Overall, in month of December 2020, gas prices rose most likely as a result of rising crude oil prices in the international market. Low-income households are less likely to be affected given that their consumption of these products is relatively lower than middle- and high-income households. However, the general decline in income due to the effect of the COVID-19 pandemic makes the increment nonetheless an economic burden.