Macroeconomic Report & Economic Updates

The Federal Government (FG) have announced plans to increase oil reserves by 40 billion barrels by the year 2030 with aim of dominating the West African oil and gas market.¹ Following this, oil production capacity is intended to rise to three million barrels per day. The Director of the Department of Petroleum Resources (DPR), Mr. Sarki Auwalu, stated at the AA Holdings’ 2021 Business Dinner of The Petroleum Club that Nigeria has vast oil and gas resources that can reverse the issue of resource curse syndrome that has plagued the country for decades. He pointed out that Nigeria is in a better position to achieve these objectives than any other West African country due to natural resources. Gas reserves are also intended to increase to 220 Trillion Cubic Feet (Tcf) by the year 2030. The effects of turning Nigeria into a gas-based economy would improve government revenue. However, this could undermine economic diversification policies and the national policy on climate change in Nigeria.

Within the period of January 1 and May 31, 2021, the Nigerian Communications Commission (NCC) recorded an increase of over 400 percent in revenue budget performance in respect of spectrum fees.¹ The NCC exceeded its N36 billion projected revenue with over N150 billion within the five months. This has been as a result of effective regulatory regimes effected over the years and a major contribution to the Federal Government’s revenue drive and generation. There have also been advancements in the nation’s telecoms industry and improved operations of licenses leading to expansion in economic output. Towards the end of 2020, the NCC announced that N344.71 billion was generated and remitted by the Commission, to the government’s Consolidated Revenue Fund (CRF) in the last five years. While the NCC stands out as a profitable government agency, careful consideration should be taken in order to avert the overregulation of telecom providers. Such excessive regulation could dissuade private investors from the sector and have adverse effects on the industry’s profits.  

The Federal Government has approved the Medium-Term Fiscal Framework (MTFF) for 2022-2024. The framework is based on the following key parameters: crude oil price benchmark of $57 per barrel, crude oil production of 1.88 million barrel per day, exchange rate of N410.15/$, inflation rate of 13 percent and Gross Domestic Product (GDP) growth rate of 4.2 percent in 2022.¹ The framework further projects federal government budget to rise from N13.58 trillion in 2021 to N13.98 trillion in 2022 and revenue is to rise from N7.99 trillion to N8.36 trillion within the same period. The MTFF is important in setting benchmarks for government spending in the medium-term which breeds accountability, transparency, and organization. However, historical precedents suggest that adhering to the medium-term framework is difficult owing to the use of overly optimistic parameters. In this case, an inflation rate of 13 percent can be considered optimistic given that the current inflation rate is 18%. Consequently, revising these parameters to reflect the current trends in the economy is critical to achieving the budget targets. 

Crude oil price increased to the highest since 2019 while external reserve decreased in the week under review. The price of Nigeria’s bonny light increased by 3.5 percent to an average of $76.4 per barrel in the week under review.³ Despite the increase, external reserve fell by $246.9 million to an average of $33.59 billion. External reserves have been depleting since May 2021.⁴ The main source of foreign exchange earnings is from crude oil and an increase in crude oil price should be reflected in the external reserves. However, the increase in crude oil prices does not translate into increase in external reserves and revenue as Nigeria sells crude oil on contract.⁵ While crude oil prices are exogenous to the Nigerian economy, the rise in crude oil prices eventually will improve government revenue and external reserves. Furthermore, the depleting external reserves implies that the Nigerian economy is still heavily dependent on imports and reveals the importance of diversifying the Nigerian economy.

Inflation rate decreased for the second consecutive month in May 2021. More specifically, inflation rate fell to 17.93 percent in May 2021, 0.19 percent lower than the 18.12 percent recorded in April 2021.¹ The decrease was driven by the food component of inflation which fell to 22.28 percent from 22.72 percent in the preceding month. By contrast, core component of inflation increased by 0.41 percent to 13.15 percent in the review period. The marginal decrease in food inflation could be linked to improved security in food-producing regions in the past weeks. On the basis of improved security, the prices of food could continue to fall leading to a decline in overall inflation. The Central Bank of Nigeria can increase the Monetary Policy Rate (MPR) which should reflect in the interest rates offered by commercial banks and decrease bond prices to reduce the money supply and address the persistent rise in prices.