Economy
Inflation Will Escalate if CBN Continues to Fund Government Deficits—IMF
By Aduragbemi Omiyale
The Central Bank of Nigeria (CBN) has been advised to make efforts to suspend or reduce its funding of the government’s fiscal deficits if it wants the red-hot inflation to cool down.
According to the National Bureau of Statistics (NBS), the country’s inflation moved up to 22.41 per cent in May 2023 from 22.22 per cent in April 2023.
The inflation data for June 2023 is expected to be released by the agency on Monday, July 17, and some analysts are projecting that it would near or surpass 23.00 per cent due to the effect of the fuel subsidy removal and the liberalisation of the foreign exchange (FX) rates, which pushed prices of goods and services higher last month.
At his inaugural speech on Monday, May 29, 2023, President Bola Tinubu declared an end to the petrol subsidy regime, pushing the pump price to N500 per litre from N185 per litre.
Speaking at a press briefing on Thursday, the Director of the IMF Communication Department, Ms Julie Kozack, said her organisation sees inflation further going up in Nigeria in the coming months.
“As to inflation, we do expect inflation to increase in the coming months. And as a result, or because of that, fiscal and monetary policy tightening, including reducing central bank financing of government fiscal deficits, are needed to prevent a further escalation of inflation,” she said.
The last administration of Mr Muhammadu Buhari borrowed several trillions of Naira from the CBN under the leadership of Mr Godwin Emefiele to finance budget deficits.
After several criticisms, his government approached the parliament to convert the CBN loans, also known as Ways and Means, to government securities or bonds, with a maturity of about 40 years.
The ninth National Assembly under Senate President Ahmad Lawan and Speaker Femi Gbajabiamila approved the request before the end of the tenure of Mr Buhari on May 29.
While reacting to the recent policies of the present administration, Ms Kozack said, “Increasing well-targeted social spending will be critical to mitigating the impact of the removal of fuel subsidies on the most vulnerable.”
“Strengthening revenue mobilisation through tax administration reforms is also essential to create fiscal space, reduce vulnerabilities, and put public debt on a sound footing,” she added.
However, she said the IMF will continue to work with the local authorities on ways to support the country, which is the largest economy in Africa.
“So, in Nigeria, the most recent Article IV consultation was concluded on February 6, 2023. IMF staff has been engaging closely with the transition team, elaborating on the IMF’s policy recommendations, and providing policy advice if requested.
“The IMF welcomes the recent removal of fuel subsidies and the unification of the exchange rate regime,” the global lender’s spokesperson said.
By Dipo Olowookere
The Nigerian Exchange (NGX) Limited shed 0.66 per cent on Thursday, driven primarily by sell-offs in financial stocks.
During the session, the insurance counter depreciated by 2.26 per cent, the banking space dropped 2.04 per cent, the consumer goods index tumbled by 1.18 per cent, and the industrial goods sector gave up 0.70 per cent. They offset the 0.01 per cent leap recorded by the energy segment at the close of business.
Consequently, the All-Share Index (ASI) moderated by 1,617.91 points to 245,362.26 points from the previous day’s 246,980.17 points, and the market capitalisation retreated by N1.005 trillion to N158.340 trillion from Wednesday’s N159.345 trillion.
The worst-performing equity was Tripple Gee, which crashed by 10.00 per cent to N2.88. Lasaco Assurance declined by 9.92 per cent to N2.18, C&I Leasing slumped by 9.84 per cent to N5.50, Mutual Benefits depreciated by 9.80 per cent to N3.22, and Trans-Nationwide Express decreased by 9.03 per cent to N2.82.
The best-performing equity was Legend Internet, which chalked up 8.64 per cent to close at N4.40. DAAR Communications advanced by 7.32 per cent to N1.76, Sterling Holdings grew by 6.67 per cent to N8.00, Sovereign Trust Insurance expanded by 5.73 per cent to N2.03, and Royal Exchange soared by 4.69 per cent to N1.34.
Trading activity yesterday improved when compared with midweek’s, with the volume of trades up by 176.72 per cent to 2.1 billion shares from the 758.9 million shares recorded a day earlier. The value of transactions increased by 582.84 per cent to N230.8 billion from N33.8 billion, and the number of deals shrank by 12.71 per cent to 48,231 deals from the 55,251 deals executed on Wednesday.
First Holdco was the busiest stock for the day, with a turnover of 1.6 billion units valued at N196.2 billion, Access Holdings sold 37.4 million units for N998.5 million, Sterling Holdings exchanged 36.0 million units worth N286.8 million, Ellah Lakes transacted 34.8 million units for N297.8 million, and Zenith Bank traded 33.1 million units valued at N4.0 billion.
By Adedapo Adesanya
The oil market settled lower by 1 per cent on Thursday as traders digested proposed plans for a Saudi Arabia-led maritime coalition to boost defence cooperation around the Red Sea.
Brent futures slipped by $1.71 or 1.88 per cent to $89.03 a barrel, while the US West Texas Intermediate (WTI) crude futures declined by 87 cents or 1.03 per cent to trade at $83.59 per barrel.
Saudi Arabia seeks to lead a coalition to boost defence cooperation in the Bab El-Mandeb Strait, the Red Sea and the Gulf of Aden.
The Saudi defence ministry said 14 states, including Turkey, Pakistan, Egypt, Sudan and Djibouti, have issued a joint statement in support of the proposed multinational maritime defence coalition.
This comes after Iran-aligned Houthi militants in Yemen declared a naval blockade last week on Saudi Arabia, threatening the Red Sea route for its oil exports, an alternative to the largely blockaded Strait of Hormuz. The strait, which normally handles around a fifth of global oil and liquefied natural gas flows, has remained a focal point for oil markets since the US and Israel launched the war on Iran on February 28.
Houthis had attacked Saudi Arabia this week from Iraqi territory in coordination with Iraqi armed groups, reflecting growing coordination among Iran-aligned militias, two officials in the region said. The attacks included strikes on oil facilities in Saudi Arabia’s eastern province, the kingdom’s main crude hub.
Iran and Oman also continued talks on the management of the Strait of Hormuz, after Iran previously ruled out Oman’s proposal for regional joint management of the waterway.
It also denied that it is negotiating with US officials and gave no sign that it was ready to make new concessions over its effective closure of the strait.
Meanwhile, the US military said it had hit dozens of Islamic Revolutionary Guard Corps (IRGC) targets in Iran in an operation launched after it fired ballistic missiles at U.S. forces in the Middle East.
Fresh supply worries also emerged after tankers loading at the Caspian Pipeline Consortium (CPC) terminal headed away from the Black Sea after a vessel was hit during loading at the terminal on Thursday.
A Ukrainian drone attack caused a fire at Lukoil’s Perm refinery that damaged and forced the shutdown of one of its crude distillation units.
By Modupe Gbadeyanka
The federal government has been urged to give all the necessary support to indigenous investors, as they remain Nigeria’s most important drivers of employment, foreign exchange generation and long-term economic resilience.
This advice was given by foremost businessman, Mr Aliko Dangote, when he welcomed the Minister of State for Industry, Mr John Owan Enoh, to the Dangote Petroleum Refinery and Petrochemicals in Lagos recently.
The business mogul noted that efforts must be made to place industrialisation at the centre of the government’s economic strategy, insisting that no nation has attained prosperity without a strong manufacturing base.
“If Nigeria is to achieve sustainable growth and become a trillion-dollar economy, industrialisation must be the foundation. Indigenous investors remain the strongest catalysts for that transformation,” Mr Dangote stated.
He further stated that, “There is no way to create jobs and prosperity without industrialisation,” declaring that, “The greatest attraction for foreign investors is the success of domestic investors. When local investors thrive, they send a powerful signal that the environment is conducive for investment.”
In his remarks, the Minister promised deeper collaboration with the private sector to accelerate industrialisation, job creation and economic transformation.
He also pledged that the Ministry and its agencies would remain strong advocates of the refinery and the broader industrialisation agenda, adding that the government would continue to engage Dangote Industries Limited through the Industrial Revolution Work Group and ministerial roundtables to address challenges facing manufacturers, particularly access to affordable long-term financing.
Mr Enoh described the integrated industrial complex as one of the most significant investments in Africa and a model for the type of industrial development required to drive Nigeria’s economic growth aspirations.
“This facility matters because of what it represents for Nigerian industry, for our people and for the realisation of President Bola Tinubu’s vision of a one trillion-dollar economy,” he stated, noting that the refinery has emerged as a powerful symbol of value addition, industrial competitiveness and Nigeria’s growing manufacturing capability.
The Minister noted that the refinery has fundamentally changed global perceptions of Nigeria by helping to transform the country from a major importer of refined petroleum products into an exporter serving international markets.
“When global supply disruptions occurred, Nigeria was able to export petroleum products to markets in the Middle East and beyond. That is an extraordinary achievement and one that deserves recognition,” he added.
