The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) voted to reduce the Monetary Policy Rate by 100 basis points, from 12.5 percent to 11.5 percent.¹ Other decisions taken by the MPC includes the retention of Cash Reserve Ratio (CRR) at 27.5 percent and retaining the liquidity ratio at 30 percent. These decisions were made in support of driving price stability and output growth. The MPC aims to use these policies to help reduce cost of capital in order for businesses to be able to afford loans. While the reduction in the MPR is expected to reflect in the interest rate of commercial banks, the banking sector may not be well-positioned to provide affordable loans. Considering that loans and advances to the oil sector accounts for about 30 percent of the risk assets in the banking industry, the disruption in the oil sector is likely to affect the ability of these companies to service their loans. Furthermore, banks are already being encouraged to offer debt moratorium by restructuring existing loans combined with the already high cash reserve ratio, making it difficult for them to make loans available. As such, revisions to CRR should be considered at the next MPC meeting.
October 27, 2020
Nigeria Economic Update (Issue 39)
Recently released data by the Debt Management Office reveals a further increase in Nigerias debt stock as at the end of 2017Q3. Total debt stock stood at N20.37 trillion as at September 20172, increasing by 3.75 percent Quarter-over- Quarter and 20.67 percent Year-on-Year. External debts rose 2 percent to N4.69 trillion, while domestic debts (FGN and States) grew by 4.3 percent to N15.68 trillion both accounting for approximately 23 percent and 77 percent of total debt stock respectively. Obviously, Nigerias increasing debt accumulation at a rate faster than GDP growth rate, clearly exacerbates difficulties in meeting debt repayment and sustainability of debt servicing measures. The recent borrowing surge should be utilized to provide socially viable and profitable infrastructure so as to minimize the future debt burden.
Power sector statistics indicates a huge decline in power generated in the week under review (June 23, 2017 to June 30, 2017). Power generated, attained a peak of 4,305 MW on June 23, 2017 but fell significantly by 33.1 percent to approximately average of 3,000 MW as at June 30, 2017. The huge decline is attributable to continued poor payment and inability of most GENCOs to pay for gas supply and a system collapse. Consequently, power sector lost huge prospective funds; and daily power supply reduced to 4.5 hours per day7. Going forward, improvement in energy supply is critical to domestic production, job creation, and diversification agenda of the government.
Latest figures of FDI flows to Nigeria show a decline of 27 per cent from $4.7 billion in 2014 to $3.4 billion in 20152, representing its lowest value since 2005. This decline is largely attributed to the oil price slump, which has generally increased uncertainty in the economy, with adverse effects on investors confidence. The fall in FDI flows was witnessed in most resource based economies in Africa, as FDI flows to the continent fell by 31 percent in 2015. The forex controls in place in Nigeria has also exacerbated the uncertainty in economy, and created obstacles for both domestic and foreign investors. Thus a review of the forex restrictions could send positive signals to investors.