The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), in its 147th meeting, has raised the Monetary Policy Rate (MPR) to 18 percent.1 This represents an increase of 50 basis points from the previous MPR of 17.5 percent. The apex bank attributes this sixth consecutive increase in the MPR since April 2022 to rising inflation in the country, with issues such as the anticipated fuel subsidy removal, exchange rate pressure, and rising energy prices in view, and is a bid to curb rising inflation. The recent inflation figures show that inflation has risen to 21.91 percent as of February 2023 despite the cash crunch in the country and defying the policy measures put in place by the CBN in recent months.2 Hence, Nigeria's rising inflation levels exhibit structural patterns driven by supply-side variables. Consequently, as the MPR has not been effective in curbing inflation in the country, the CBN should aim to tackle the structural drivers of inflation. Continuous MPR increases could be bad for business growth since they could deter companies from borrowing because doing so would increase the cost of borrowing, which could then raise inflation. So, rather than supporting any future hikes in the MPR, the apex bank should address other issues, such as high energy prices, high transportation costs, and a lack of foreign currency that frequently raise production costs.

Headline inflation in Nigeria stood at 21.91 percent in February 2023, representing a month-on-month increase of 0.09 percent over the 21.82 percent reported in January, and a year-on-year increase of 6.21 percent compared to 15.70 percent, which was recorded in the same period in 2022. This is according to the February 2023 inflation data reported by the National Bureau of Statistics (NBS). 

Transport fares continued to increase across different modes of transportation in January 2023. According to the National Bureau of Statistics report on transportation in January, the average fare paid by commuters for buses within the city per drop increased from N644.66 in December 2022 to N650.70 in January 2023.

According to the oil market report by the Organisation of Petroleum Exporting Countries (OPEC) for January 2023, global oil price slightly increased in the month of January 2023, contrary to the decline recorded in the previous month. The report showed that the OPEC reference basket (ORB) stood at $81.62 per barrel in January 2023, showing a marginal increase of $1.94 per barrel or 2.4% on a month-on-month basis when compared with the ORB price which stood at $79.68 per barrel. 

According to a report from the National Bureau of Statistics (NBS), the cost of main petroleum products like kerosene, diesel, and Premium Motor Spirit (PMS) all increased in general in January 2023. In particular, the research demonstrated that the cost of PMS increased by 24.70% month-on-month rising from N206.19 in December 2022 to N257.12 in January 2023. 

According to direct communication data in February 2023 from the oil market report produced by the Organisation of Petroleum Exporting Countries (OPEC) in January 2023, Nigeria’s crude oil production increased to 1.258 million barrels per day (bpd) from a total oil production figure of 1.235 million bpd in December 2022. This represents an increase of 23,000 bpd in January 2023 when compared with the preceding month, December 2022.

There was a general increase in transport fares across different modes of transportation in the country in December 2022. The report on transport fares released by the National Bureau of Statistics (NBS) in January 2023 revealed that the average fare paid by passengers for bus journey within the city per drop increased from N637.10 in November 2022 to N644.66 in December 2022, representing a 1.19% increase on a month-on-month basis.

This paper examines in great detail the impact of the Russia-Ukraine war on the Nigerian economy for the purpose of informing experts and non-experts alongside providing recommendations to the government. Specifically, it evaluates the trade, monetary, fiscal and macroeconomic conditions of the economy since the war began, as well as debt vulnerabilities, whilst discussing the official response so far, and seeking to forge a path for the government and its international partners.

Nigeria’s monetary and fiscal conditions have deteriorated since the war began. As a major oil producer, one could expect that Nigeria would benefit, without nuance, from higher energy prices. This has not been the case: declining oil production at a time when oil prices led to less of an export boost than expected. Moreover, the rise in the global price of food and fertilisers has translated to higher input costs for households and firms. Meanwhile, spending on oil imports and other merchandise imports, as well as various services (for instance, medical payments and tuition fees) are significant enough to have increased the demand for foreign exchange, consuming most of the increase in income associated with being an oil-exporter and causing a depreciation of the naira.

On monetary policy, the CBN’s financing of the government deficit has also created a weakness that has questioned its independence and made the naira increasingly vulnerable to speculation. Put together, tolerating these domestic economic weaknesses has contributed to the depreciation of the naira, which is not completely reflected in the official foreign exchange market. With stagnation in non-oil revenues and continuous increase in public spending, the government has had to increasingly turn to debt to finance its development needs. The IMF classified Nigeria’s debt as sustainable but points out that threats exist over the medium run, due to the high ratio of interest payments to public revenue.

The analysis presented in the paper shows that war will have a positive impact on real income at the macro level. Considering the increase in prices experienced in the first half of 2022, real income at the macro level is expected to increase by 3.6% in 2022 while multi-year simulations find that real income will increase by 3.9% in 2023 and 2024, as Nigeria gains from being a net exporter of fuel and natural gas and loses on the basis that it is a net importer of food commodities such as wheat.

However, the results at the household level are quite different: the ultra-poor households are worst hit by the war – food expenses are taking a higher share of their income. Further analysis shows that all households experience a decline in average real income (welfare gains are negative). But the lowest quintile households suffer the most from higher expenditure, (3.3% relative to 1.4% for the top quintile) while they experience a decline in average real income (-0.4%).

This publication was first published by the Finance for Development Lab. Click to read more here

The International Monetary Fund (IMF), has in its January World Economic Outlook improved its projection for Nigeria’s 2023 economic growth rate to 3.2 per cent, representing 0.2 percentage points increase from the 3.0 per cent earlier projected in its October 2022 World Economic Outlook^. The IMF based its reviewed growth on improved security measures in the oil sector in the country.