Economy
IMF: Nigeria’s Economy Still Vulnerable, Predicts 2.1% Growth in 2018
By Dipo Olowookere
Despite getting out of recession in the second quarter of this year, the Nigerian economy still remains vulnerable, the International Monetary Fund (IMF) has disclosed.
From December 6 to 20, 2017, an IMF staff team led by Mr Amine Mati, Senior Resident Representative and Mission Chief for Nigeria, visited the country to conduct the 2018 Article IV consultation.
During the visit, the team held discussions with senior government and central bank officials. It also met with members of parliament, representatives of the banking system, private sector, civil society, and international development partners.
After the visit, Mr Mati observed that, “Overall growth is slowly picking up but recovery remains challenging. Economic activity expanded by 1.4 percent year-on-year in the third quarter of 2017—the second consecutive quarter of positive growth after five quarters of recession—driven by recovering oil production and agriculture.
“However, growth in the non-oil-non-agricultural sector (representing about 65 percent of the economy), contracted in the first three quarters of 2017 relative to the same period last year.”
According to Mr Mati, “Difficulties in accessing financing and high inflation continued to weigh on companies’ performance and consumer demand.
“Headline inflation declined to 15.9 percent by end-November, from 18½ percent at end-2016, but remains sticky despite tight liquidity conditions.
“High fiscal deficits—driven by weak revenue mobilization—generated large financing needs, which, when combined with tight monetary policy necessary to reduce inflationary pressures, increased pressure on bond yields and crowded out private sector credit. These factors contributed to raising the ratio of interest payments to federal government revenue to unsustainable levels.
“Reflecting the low growth environment and exposure to the oil and gas sector, the banking industry’s solvency ratios have declined from almost 15 to 10.5 percent between December 2016 and October 2017, and non-performing loans have increased from 5 percent in June 2015 to 15 percent as of October 2017, although with provisioning coverage of about 82 percent.
“The authorities have begun addressing macroeconomic imbalances and structural impediments through the implementation of policies underpinning the Economic Recovery and Growth Plan (ERGP).
“Supported by recovering oil prices, the new Investor and Exporter foreign exchange window has increased investor confidence and provided impetus to portfolio inflows, which have helped to increase external buffers to a four-year high, and contributed to reducing the parallel market premium.
“Important actions under the Power Sector Recovery Program increased power supply generation and ensured government agencies pay their electricity bills. Welcome steps were also taken to improve the business environment and to address longstanding corruption issues, including through the adoption of the National Anti-Corruption Strategy in August 2017.
“However, in the absence of new policies, the near-term outlook remains challenging. Growth is expected to continue to pick up in 2018 to 2.1 percent, helped by the full year impact of greater availability of foreign exchange and higher oil production, but to stay relatively flat in the medium term. Risks to the outlook include lower oil prices, tighter external market conditions, heightened security issues, and delayed policy responses.
“Containing vulnerabilities and achieving growth rates that can make a significant dent in reducing poverty and unemployment requires a comprehensive set of policy measures.”
“On the fiscal front, the mission welcomes the recent tax reforms aimed at improving tax administration, planned increases in excises, and latest steps taken to lower debt servicing costs and lengthen maturities.
“However, with oil prices expected to remain lower than in the past, upfront actions to mobilize non-oil revenues, including through reforming the VAT and removing exemptions, are needed while safeguarding priority expenditures, including scaling up social safety nets and infrastructure investment.”
“Fiscal consolidation should be accompanied by a monetary policy stance that remains tight to further reduce inflation and anchor inflation expectations. Moving toward a unified and market-based exchange rate as soon as possible while continuing to strengthen external buffers would be necessary to increase confidence and reduce potential risks from capital flow reversals.”
“Such a policy package—along with structural reform implementation, including by building on recent successes to improve the business environment, closing infrastructure gaps, and implementing the power sector reform plan——would lay the foundation for a diversified private-sector led economy. Strengthening governance and transparency initiatives, and lowering gender inequality and fostering financial inclusion would also be important.”
By Adedapo Adesanya
Energy stocks influenced the 4.76 per cent loss recorded by the NASD Over-the-Counter (OTC) Securities Exchange on Friday, December 5.
The culprits were the duo of 11 Plc and Nipco Plc,with the former shedding N32.17 to end at N291.83 per share compared with the previous day’s N324.00 per share, and the latter down by N21.00 to sell at N195.00 per unit versus the previous session’s N216.00 per unit.
Consequently, the NASD Unlisted Security Index (NSI) slumped by 170.16 points to 3,401.37 points from 3,571.53 points and the market capitalisation lost N101.81 billion to close at N2.035 billion from the N2.136 trillion quoted in the preceding session.
The OTC securities exchange suffered the decline yesterday despite the share prices of three companies closing green.
Central Securities Clearing System (CSCS) Plc was up by N1.80 to close at N39.80 per share compared with Thursday’s price of N38.00 per share, Air Liquide Plc appreciated by N1.09 to N11.99 per unit from N10.90 per unit, and FrieslandCampina Wamco Nigeria Plc grew by 78 Kobo to N56.57 per share from N55.79 per share.
During the session, the volume of transactions rose by 6,885.3 per cent to 18.2 million units from 4.3 million units, the value of transactions ballooned by 10,301.7 per cent to N389.7 million from N347.2 million, but the number of deals declined by 29.7 per cent to 26 deals from 37 deals.
Infrastructure Credit Guarantee Company (InfraCredit) Plc ended the day as the most traded stock by value on a year-to-date basis with 5.8 billion units worth N16.4 billion, followed by Okitipupa Plc with 170.4 million units valued at N8.0 billion, and Air Liquide Plc with 507.5 million units worth N4.2 billion.
InfraCredit Plc also finished the day as the most traded stock by volume on a year-to-date basis with 5.8 billion units transacted for N16.4 billion, followed by Industrial and General Insurance (IGI) Plc with 1.2 billion units sold for N420.2 million, and Impresit Bakolori Plc with 536.9 million units worth N524.9 million.
By Adedapo Adesanya
The Naira depreciated further against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, December 5, as FX demand pressure mounts.
The Nigerian currency lost N2.60 or 0.18 per cent against the greenback to close at N1,450.43/$1 compared with the previous day’s N1,447.83/$1.
Equally, the domestic currency declined against the Pound Sterling in the official forex market during the session by N4.48 to trade at N1,935.45/£1, in contrast to Thursday’s closing price of N1,930.97/£1 and shrank against the Euro by 43 Kobo to end at N1,689.17/€1 versus the preceding session’s rate of N1,688.74/€1.
Similarly, the local currency performed badly against the US Dollar at the GTBank FX counter by N2 to close at N1,455/$1 versus Thursday’s N1,453/$1 but traded flat at the parallel market at N14.65/$1.
As the country gets into the festive period, pressure mounted on the local currency reflecting higher foreign payments and lower FX inflows.
However, there are expectations that the Nigerian currency will be stable, supported by interventions by to the Central Bank of Nigeria (CBN) in the face of steady dollar Demand and inflows from Detty December festivities that will give the Naira a boost after it depreciated mildly last month.
Traders cited by Reuters expect that the Naira will trade within a band of N1,443-N1,450/$1 next week, buoyed by improved FX interventions by the apex bank.
As for the crypto market, it was down yesterday due to profit-taking associated with year-end trading. However, the December 1-Year Consumer Inflation Expectation by the University of Michigan fell to 4.1 per cent from 4.5 per cent previously and 4.5 per cent expected. The 5-Year Consumer Inflation Expectation fell to 3.2 per cent from 3.4 per cent previously and 3.4 per cent expected.
With the dearth of official economic data of late, these private surveys have taken on a new level of significance and the market banks of them to make decisions.
Cardano (ADA) depreciated by 5.7 per cent to $0.4142, Dogecoin (DOGE) slid by 5.1 per cent to $0.1394, Ethereum (ETH) dropped by 3.9 per cent to $3,039.75, Solana (SOL) declined by 3.8 per cent to $133.24, and Litecoin (LTC) fell by 3.7 per cent to $80.59.
Further, Bitcoin (BTC) went down by 2.6 per cent to sell at $89,683.72, Binance Coin (BNB) slumped by 2.2 per cent to $883.59, and Ripple (XRP) shrank by 2.1 per cent to $2.04, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
By Adedapo Adesanya
The oil market was up on Friday on increasing expectations the US Federal Reserve will cut interest rates next week, which could boost economic growth and energy demand.
Brent futures rose by 49 cents or 0.8 per cent to $63.75 per barrel and the US West Texas Intermediate (WTI) futures expanded by 41 cents or 0.7 per cent to $60.08 per barrel.
Investors digested a US inflation report and recalibrated expectations for the Federal Reserve to reduce rates at its December 9-10 meeting.
US consumer spending increased moderately in September after three straight months of solid gains, suggesting a loss of momentum in the economy at the end of the third quarter as a lackluster labor market and the rising cost of living curbed demand.
Traders have been pricing in an 87 per cent chance that the US central bank will lower borrowing costs by 25 basis points next week, according to CME Group’s FedWatch Tool.
Investors also focused on news from Russia and Venezuela to determine whether oil supplies from the two sanctioned members of the Organisation of the Petroleum Exporting Countries and allies (OPEC+) will increase or decrease in the future.
The failure of US talks in Moscow to achieve any significant breakthrough over the war in Ukraine has helped to boost oil prices so far this week.
A loss of Venezuelan oil production in case of a US military intervention will materially impact global benchmark prices as the market will have to replace Venezuela’s heavy crude.
Venezuela is estimated to pump about 1.1 million barrels per day of crude oil at present, so if the US-Venezuela tension escalation into an invasion in the South American country, this volume of crude would be at risk.
Reuters reported that the Group of Seven countries and the European Union are in talks to replace a price cap on Russian oil exports with a full maritime services ban in a bid to reduce the oil revenue that helps finance Russia’s war in Ukraine.
Any deal that could lift sanctions on Russia, the world’s second-biggest crude producer after the US, could increase the amount of oil available to global markets, weakening prices.
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