Macroeconomic Report & Economic Updates

Data from the National Bureau of Statistics shows that Value Added Tax (VAT) revenue for the first quarter of 2021 (Q1 2021) stood at N496.39 billion. This represents 9.17 percent and 52.93 percent increase relative to the previous quarter and corresponding quarter of 2020, respectively¹. Further disaggregation shows that the following sectors generated the highest VAT: other manufacturing sector - N49.41 billon and professional services - N42.50 billion. Mining sector and textile/garment sector contributed the least to VAT collections during the period under review. The sectorial distribution of VAT revenue is an indication of the importance of the manufacturing and service sectors to the Nigerian economy. It is therefore important to continuously improve the business climate in the country to enhance the growth potential of these sectors as they are yet to reach their optimal levels. Enhancing overall business climate would also attract investments in other less-performing sectors of the economy, which should ultimately lead to more tax revenues to fund much-needed infrastructural projects in the country.

Recently released Budget Implementation Report shows that gross total revenue generated in the third quarter of 2020 (Q3 2020) declined by 3.07 percent relative to the previous quarter. Specifically, gross total revenue fell to N1.88 trillion in Q3 2020 from N1.94 trillion in the preceding quarter.¹ Further disaggregation shows that gross oil revenue fell to N813.59 billion in Q3 2020 from N1.02 trillion in the previous quarter while gross non-oil revenue grew to N1.07 trillion in Q3 2020 from N921.53 billion². The decline in total gross revenue was driven by a 20 percent fall in gross oil revenue which outweighed a 15.7 percent increase in gross non-oil revenue. Going forward, government revenue is expected to recover by 2022 as the oil market stabilizes and tax receipts from non-oil sectors increase with improved economic activities. However, a large share of the economy remains informal with implications on the size of tax revenue raised. Even for businesses in the formal economy, a sizeable number of businesses continue to evade tax, leading to leakages in the system. Consequently, informality and tax evasion will have to be addressed using technology to improve data collection and monitoring of firms.

Data from the National Bureau of Statistics (NBS) indicates improved performance in total volume and value of electronic banking transactions in Q4 2020. Total volume of e-payment transactions for the period under review was 3.46 billion valued at ₦356.47 trillion¹. This is a 24.6 percent and 11.4 percent increase in transaction volume and value respectively, relative to the previous quarter of 2020. Disaggregation by types of payment channels shows that online transfers accounted for 64.3 percent and 33.7 percent of total volume and value in the period under review. Real-time gross settlement (RTGS) accounted for just 0.04 percent of volume but 31.7 percent of value, while National Electronic Funds Transfer (NEFT) accounted for 1.4 percent of volume and 27 percent of value. Consistent growth in total digital financial transactions could signify a positive trend for the country’s financial inclusion goals. It is however important that such growth ultimately translates to extending banking services to excluded segments of the population.

Data from the World Bank Poverty and Shared Prosperity report shows that Nigeria’s poverty level has further increased in the wake of the COVID-19 pandemic. More specifically, 79 million Nigerians live in extreme poverty, accounting for 20 percent of the people living in poverty in SSA. COVID-19 and its associated economic crisis are enabling factors of the high poverty headcount². Data from COVID-19 phone surveys in Nigeria suggests that about 85 percent of households experienced higher food prices, with half reducing their food consumption as a coping strategy². The upward trend in poverty is expected to continue owing to the difficulty in generating adequate broad-based economic growth, inability to create jobs, and high population growth rate. As a result, private sector innovativeness and talent should be fostered in way that creates new opportunities for young people. The government on the other hand should utilize the policy landscape to support the private sector and enforce population control measures.

The Monetary Policy Committee (MPC) has voted to retain the monetary policy rate (MPR) at 11.5%¹. Other parameters remain unchanged; for instance, the cash reserve ratio (CRR) was maintained at 27.5% while liquidity ratio remains at 30%. The committee’s decision to take a holding position is expected to be supplemented by various ongoing government intervention programmes. These programs are intended to facilitate employment generation and stimulate recovery/growth in various sectors of the economy post-pandemic. While this decision might be suitable for now, it is important for the MPC to closely monitor the evolving economic situation in the country, especially in view of rising inflation rate and foreign exchange fluctuations which have an impact on the value of the Naira. Close monitoring and a proactive approach, will ensure that the measures put in place yield the desired outcome of stimulating growth.