Macroeconomic Report & Economic Updates

External/foreign reserves depleted by 0.6% to $40.7 billon for the week in review from $41.04 billion, the lowest since January 2018.³ The reserve has steadily plunged since the last week of July, losing about $5 billion in the last 4 months. The depletion in external reserve is attributable to the Central Bank of Nigeria (CBN) intervention in the foreign exchange market to prevent depression arising from capital flight.⁴  This capital flight has been largely driven by rising uncertainties in the Nigerian economy, in addition to lower but expected increase in the United States’ interest rate. While the monetary authorities have maintained foreign exchange stability at the expense of foreign reserves, there is need for fiscal authorities to supplement efforts to sustain reserves. Social, economic and political uncertainties –arising from the recent border closure for instance – are disincentives to investment that should be tackled to boost investors' confidence and shore up external reserves.

Consumer prices for the month of September 2019 increased by 0.22 percentage points. Specifically, inflation rate increased from 11.02 percent in August to 11.24 percent in September 2019.¹ The rise in inflation rate is attributed to an increase in both core and food components which rose by 0.34 percent and 0.26 percent respectively. The Inflation Attitudes Survey conducted by the Central Bank of Nigeria in 2019 Q3 suggests that 52.9 percent of respondents believe that the economy would end up weaker if prices rise faster than they do now.² Respondents also indicated that they will prefer higher interest rates to higher consumer prices. This continuous rise in the prices of goods and services leaves households and firms with less disposable income and profit respectively. Going forward, we expect demand-pull inflation to rise stemming from the soon-to-be implemented minimum wage, and cost-push inflation emanating from increase in energy and food prices as we approach the festive season.

Internally Generated Revenue (IGR) for the 36 states and the Federal Capital Territory (FCT) increased by 15.78 percent in the first half of 2019 relative to the second half of 2018. IGR increased from ₦596.91 to ₦691.11 billion in the review period.¹ Income tax (62.45 percent) was the major source of revenue for the states. Other sources of internal revenue for the states include road tax, revenue from MDAs, direct assessment, and other forms of taxes. Further disaggregated data shows Lagos state generated the most revenue, accounting for 29.6 percent of the total internal revenue generated. Rivers, FCT, Delta, Ogun, Kaduna and Akwa Ibom generated over ₦20 billion each in the first six months of 2019. Gombe, Yobe, Taraba and Borno – all north eastern states – generated the least (less than ₦4 billion each) in the review period. In as much as states intend to increase the level of IGR generated, careful consideration should be made with regards to taxing households and firms in order not to undermine productivity and in turn, economic growth. Other sources of revenues from ‘state-owned’ enterprises such as recreational centres and real estates can be explored. Particularly, revenues from tourism can be strengthened.

Market indices at the Nigeria Stock Exchange closed downward in the trading week ended October 4, 2019. The bourse recorded a  meagre 2.48 percent decrease in twin market indices– All Share Index and Market Capitalization. Both indices closed at 26,987.45 and N13.137 trillion respectively.¹ All of other market indices depreciated with the exception of NSE Insurance and NSE Industrial Goods Indices. The worst hit was Consumer Goods Index NSE Banking Index which declined by 4.92 percent and 3.94 percent respectively, while the NSE Insurance Index increased by the most percentage of 5.71percent. The depreciation can be linked to profit taking on gains made the previous week.² We expect market sentiment to turn around as discerning investors start buying stocks that are now trading at lower levels. We also expect that the swift approval of the 2020 budget will have a positive impact on investor’s sentiment, consumer spending and companies’ earnings; and thus on the future market value of the outstanding shares, especially in the consumer goods market.

The Central Bank of Nigeria (CBN) reviewed upward the minimum Loan to Deposit Ratio (LDR) target for all Deposit Money Banks (DMBs) from 60 percent to 65 percent.¹ This is to sustain the momentum gained from a 5.33 percent (N829.40 billion) increase in the industry gross credit between end of May 2019 and 26^th September 2019. If Nigerian banks abide by the new regulation, this should translate to increased lending to Nigerian businesses  thereby supporting private sector growth. Regulatory enforcement or incentives may be needed to ensure that banks follow through with the regulation, as many of the biggest banks fell short of the regulator’s initial 60 per cent LDR threshold.