Macroeconomic Report & Economic Updates

The Nigerian economy raked in more revenue for the four quarters of 2018 fiscal year than in 2017. In the recently released economic report, the CBN reported that federally collected revenue increased by 28.4 percent to N9.44 trillion in 2018¹ – from N7.35 trillion in 2017². Both oil and non-oil components of federally collected revenue rose in the review year, attaining one-year peaks in 2018Q4 (N1.47 trillion) and 2018Q3(N1.14 trillion) respectively. The annual increase was most prominent in oil revenue sources, which grew significantly by 35 percent at the backdrop of 2018 improved oil price and domestic production, and accounted for N5.55 trillion of the total collected revenue. However, after statutory deductions and transfers, the federal government retained N3.96 trillion and a closer review shows that the FG expenditure pattern - at N7.36 trillion - resulted in a fiscal deficit of N3.4 trillion for the whole year 2018. Boosting non-oil sector trade and export, through infrastructure development and credit support, is critical to boosting overall government revenues to levels that match expenditure.

States’ Internally Generated Revenue (IGR) declined in the third quarter 2018, replicating the same downward trend as seen in the previous quarter. IGR dropped to N264.38 billion in 2018Q3, compared to N279.78 billion generated in the preceding quarter – down by 5.5 percent¹. The recently released IGR report by the NBS also shows that 20 states generated less revenue during the quarter (including the FCT), and only 17 states recorded growth in IGR. Reductions in Pay-As-You-Earn (PAYE) Tax, Direct Assessment, Road Taxes and revenues from Ministries, Departments and Agencies (MDAs) prompted the overall decline. In order to expand the tax base thereby improving tax revenues, a special focus should be given to harnessing the informal sector into the tax net.

The monetary policy committee provided policy parameters at the first meeting for the 2019 fiscal year, held on 21st and 22nd January, 20191. As presumed, all parameters were left unchanged at their current levels: MPR at 14 percent, CRR at 22.5 percent, liquidity ratio at 30 percent, and asymmetric corridor of +200/-500 basis points around the MPR. This is the 14th consecutive time the MPC will retain all parameters, and the apex bank is justifying its stance by insisting that the economy has remained on a noteworthy track based on prevailing positive macroeconomic performances2. The committee’s optimistic outlook is likely hinged on, among other laudable achievements, the acclaimed return of foreign investors’ confidence and convergence of the foreign exchange market – the CBN has relentlessly upheld the value of the Naira despite perceptions of election risks on exchange rates. In the coming months, changes in monetary policy parameters will, however, depend on the macroeconomic performance after the elections as well as the objective to hit the CBN’s inflation target of 6 to 9 percent.

Inflation rate rose in December 2018 for the second consecutive month to 11.44 percent, 0.16 percentage points higher than the 11.28 percent recorded in November 2018.¹ The rise in inflation was driven by the food component of inflation which increased to 13.56 percent from 13.30 percent within the same period. Further disaggregated data shows that the highest increments were recorded in the price of basic food items such as bread, cereals, fish, meat, potatoes, yam and other tubers. Core inflation experienced no increment from the previous month, stagnating at 9.80 percent. Seasonal demand effect is closely linked to the rise in inflation given that the holiday season is associated with a rise in the price of food items. In the coming month, we expect the inflation rate to continue on the upward trend considering the increase in election-related spending. The current monetary policy parameters should remain unchanged until a clearer picture of the effect of the election on economic indicators is known

The amount of financial subsidy that Nigeria absorbs to maintain pump price at the official N145/litre has remained high. According to reports, the NNPC now pays N48.68 subsidy for a litre of petrol¹, as against the N26 recorded as payments in May 2018². In total, at the daily average consumption rate of 50 million litres per day, the government currently pays N2.43 billion per day as subsidy payments. The direct and externally-influenced reason has been increasing in landing costs which rose from N171 to N193.7 – consistently above the official N145 pump price - and this has fueled the very politically-charged issue of increasing petrol pump price domestically. With the upward trend in oil price, landing costs are expected to continue rising. The complete deregulation of the downstream oil sector will allow for private investment and consequently end subsidy payments, making it available for other sectors.