The September 2019 Consumer Price Index (CPI) report published this week revealed a broad-based increase in consumer prices, partly caused by the recent partial closure in land borders between Nigeria and neighboring countries. This fed into headline inflation which rose sharply to 11.2% Y-o-Y in September (August: 11.0%), bucking the trend of disinflation between June and August 2019. Although the quick uptrend in headline inflation can be attributed to the 6bps M-o-M increase to 1.04% (August: 0.99%), the first increase in five months, we believe a weak base played a major part.
The 2020 appropriation and finance bills of the Federal Government (FG) were presented to the National Assembly by President Muhammadu Buhari on Tuesday, the earliest time for such after November 2017. The quick submission of the bill to the legislators should give ample time for deliberations and hasten final approval, especially as the current leadership of the National Assembly is supportive.
The Q2:2019 merchandise trade report released by the National Bureau of Statistics (NBS) shows that Nigeria’s trade surplus declined to N588.8bn from N831.6bn in Q1:2019 as imports continued to expand faster than exports. Imports sustained the upward trajectory since Q3:2018, rising 8.2% and 65.2% (vs 25.8% and 3.4% in Q1;2019) on Y-o-Y and Q-o-Q basis respectively. This was mainly driven by a sharp rise across the board, but the importation of fuel and lubricant saw a steeper rise at 22.1% and 168.5% to N886.0bn on Y-o-Y and Q-o-Q basis respectively.
The Federal Executive Council (FEC) recently approved an increase in the Value Added Tax (VAT) rate to 7.2% from the initial 5.0% established since January 1, 1994. The increase is primarily to support the finances of states as the new minimum wage of N30,000/month becomes effective. The timeline for the implementation of the new rate is unclear, but the minister of Finance, Budget and National Planning hinted at 2020. As there are plans for wide consultation and amendment to the existing VAT Act, implementation may take longer than expected.
President Muhammadu Buhari finally inaugurated his cabinet and assigned portfolios to the 43 appointed ministers this week, six months post-elections and almost three months into his second term.
Considering that it took President Buhari almost six months to form a cabinet in his first coming, this could be considered an improvement. However, historical evidence suggests that we do not consider this to be a positive signal as the administration’s arsenal resists speedy response to pressing issues.
The Consumer Price Index Report for July 2019 revealed a further moderation in headline inflation rate to 11.1% Y-o-Y from 11.2% Y-o-Y in June 2019. The moderation can be attributed mainly to a high base effect and slower M-o-M inflation of 1.0% compared with 1.1% in the previous month. Across the major sub-indices, there was a broad-based slowdown. Food inflation slowed to 13.4% Y-o-Y from 13.6% in June 2019, reflecting a high base effect and slow increases in consumer prices M-o-M at 1.3% from 1.4% in the preceding month.
The direction of Nigeria’s fiscal policy over the medium-term still hangs on a balance as ministers are yet to resume. While delay is costly, a more pressing concern would be seeing the FG sustaining the policies of the past four years. In this report, we present the task ahead for the finance minister between 2019 and 2023 by analysing the dire state of FG’s finances.
In the upcoming meeting of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) between July 22nd and 23rd 2019, we expect rates to be kept at current levels but the tone of members to support monetary easing. Since the last meeting in May 2019, the global and domestic economic environments have become more supportive of the shift towards looser monetary policy. On the domestic scene, the CBN has issued new guidelines to compel commercial banks to expand credit. The most drastic was the minimum floor of 60.0% established for loan to deposit ratio.
In our Economic and Financial Market Outlook 2019 titled “On the Precipice”, we noted that Nigeria desperately needs structural and market-driven reforms, human capital and infrastructure investments to put Nigeria on the path of sustained growth and prosperity. We reiterated our resolve that the performance of the economy over the medium-term would depend on the policies of the winner of the presidential elections. Fast forward to June 2019, President Buhari was re-elected for a second term with 56.0% of the 26.5 million votes cast.