- Divergent Outlook Over inflation in Q3
Businesses and consumers have differed in the expectations of the direction of the inflation rate in the third quarter of the year.
Meanwhile there was consensus of optimism about further naira appreciation and improved macro-economic performance in the third quarter.
These were highlights of the Business Expectations and Consumer Expectation surveys conducted by the Central Bank of Nigeria (CBN) in the just concluded second quarter.
The inflation rate has been on the downward trend since February falling from 18.72 per cent in January to 16.25 per cent in May
The CBN survey, however, revealed that while firms expect the inflation rate to moderate, consumers expect it to rise in the third quarter.
The CBN stated: “The outlook of businesses for the next quarter (Q3) however indicated greater confidence on the macro economy at 47.5 points. The drivers for this optimism were services (19.2 points), wholesale/retail trade (12.2 points, industrial (11.6 points and construction (5.3 points) sectors. Majority of the respondent firms expect the naira to appreciate in both the current and next quarters. Respondent firms expect inflation to rise in the current quarter but moderate in the next quarter.”
The apex bank also added: “The consumer outlook for the next quarter (Q3) and that of the next 12 months were however positive at 21.3 and 34.2 points respectively. The outlook could be attributed to the anticipated improvement in Nigeria’s economic conditions, expected increase in net household income, and expectations to save a bit and/or have plenty over savings in the next 12 months. Most respondents expected that borrowing rate will fall and naira will appreciate in the next 12 months, while inflation and unemployment will rise.
June PMI indicates increased economic expansion
Meanwhile, the CBN’s Purchasing Managers Index (PMI) report for the manufacturing and non-manufacturing sectors show that more sub-sectors recorded growth during the month of June 2017. The report showed that 27 out of the 34 subsectors surveyed during the month recorded growth, up from 20 subsectors that recorded growth in May. In the manufacturing sector, 12 subsectors recorded growth while four subsectors contracted. In the non-manufacturing sector, 15 subsectors recorded growth while three subsectors contracted.
The report stated: “The Manufacturing PMI stood at 52.9 index points in June 2017, indicating expansion in the manufacturing sector for the third consecutive month.
Expansion in the manufacturing sector
Twelve of the 16 sub-sectors reported growth in the review month in the following order: computer & electronic products; paper products; plastics & rubber products; primary metal; transportation equipment; petroleum & coal products; appliances & components; textile, apparel, leather & footwear; furniture & related products; electrical equipment; food, beverage & tobacco products and fabricated metal products. The remaining 4 sub-sectors declined in the order: nonmetallic mineral products; cement; chemical & pharmaceutical products and printing & related support activities.
“The composite PMI for the non-manufacturing sector grew to 54.2 in June 2017 indicating growth in Non-manufacturing PMI for the second consecutive month. Of the 18 non-manufacturing sub-sectors, 15 recorded growth in the following order: utilities; water supply, sewage & waste management; finance & insurance; educational services; repair, maintenance/ washing of motor vehicles; agriculture; health care & social assistance; information & communication; electricity, gas, steam & air conditioning supply; real estate, rental & leasing; wholesale trade; professional, scientific, & technical services; transportation & warehousing; accommodation & food services and arts, entertainment & recreation. The public administration, management of companies and construction sub sectors recorded contraction in the Non –manufacturing PMI in June 2017”.
Cost of funds to stabilise this week
Cost of funds in the interbank money market is expected to stabilise this week due to anticipation of improved system liquidity. Last week short term cost of funds fell by average of 359 basis points due to liquidity inflow of N276 billion from matured treasury bills, which cancelled out the effect of N86 billion outflow through purchase of secondary market bills on Friday. This coupled with reduction in outflow for dollar purchase caused interest rates on Collateralised Lending and Overnight lending to fall by 342 bases points and 375 basis points respectively. While interest rate on Collateralised Lending fell to 5.33 per cent on Friday from 8.75 per cent the previous week, interest rate on Overnight lending dropped to 5.75 per cent from 9.5 per cent the previous week.
Investigation showed that the market will experience N187 billion inflow from payment of matured treasury bills, which the apex bank will mop-up by selling equal amount of bills during the week. Notwithstanding, analysts were optimistic that cost of funds will be stable during the week. According to analysts at Cowry Assets Management Limited, “We expect financial system liquidity ease and resultant stability in interbank rates.
Similarly, analysts at Vetiva Capital Management Limited stated: We expect the improvement in system liquidity to continue to spur demand in the fixed income market in the coming week. Also, with the CBN signalling its intention to reduce T-bills rates (with the lower rates seen in recent OMO auctions), we see further room for increased buying activity in the T-bills market particularly.”
Naira records mixed performance
In spite of the $195 million injected into the interbank foreign exchange market and $130 million injected into the Bureau de change segment, the naira recorded mixed performance in the foreign exchange market last week.
While the naira appreciated by N1.5 in the parallel market, it depreciated by N4.28 at the Nigeria Autonomous Foreign Exchange (NAFEX) segment. While the parallel market exchange rate dropped to N366 per dollar last week from N367.5 per dollar the previous week, the NAFEX rate rose to N366.44 per dollar from N362.16 per dollar within the same period.
During the week, the CBN continued its intervention by selling $195 million in the interbank market on Wednesday. A breakdown of the intervention showed that authorized dealers in the wholesale window segment received a $100 million, while the Small and Medium Enterprises (SMEs) and invisibles windows were allocated the $50 million and $45 million, respectively. In addition to this, the CBN sold $40,000 to each of the 3,145 bureaux de change (BDCs) across the country.
NNPC To Resume Oil Exploration In Sokoto Basin
The Nigerian National Petroleum Corporation on Thursday announced plans to resume active oil exploration in Sokoto Basin.
A statement issued in Abuja on Thursday by NNPC spokesperson, Kennie Obateru, said the corporation’s Group Managing Director, Mele Kyari, said exploration for crude would resume in the Sokoto Basin.
The statement read in part, “Kyari also hinted of plans for the corporation to resume active exploration activities in the Sokoto Basin.”
The NNPC boss disclosed this while receiving the Governor of Kebbi State, Atiku Bagudu, who paid Kyari a courtesy visit in his office on Thursday.
In October 2019, the President, Major General Muhammadu Buhari (retd.), had during the spud-in ceremony of Kolmani River II Well on the Upper Benue Trough, Gongola Basin, in the North-East, said the government would explore for oil and gas in the frontier basins across the country.
He outlined the basins to include the Benue Trough, Chad Basin, Sokoto and Bida Basins.
Buhari had also stated that attention would be given to the Dahomey and Anambra Basins which had already witnessed oil and gas discoveries.
Kyari restated NNPC’s commitment to the partnership with Kebbi State for the production of biofuels, describing the project as viable and in tandem with the global transition to renewable energy.
He said the rice production programme in the state was a definite boost to the biofuels project.
Kyari said the linkage of the agricultural sector with the energy sector would facilitate economic growth and bring prosperity to the citizens.
He was quoted as saying, “We will go ahead and renew the Memorandum of Understanding and bring in any necessary amendment that is required to make this business run faster.”
The Kebbi State governor expressed appreciation to the NNPC for its cooperation on the biofuel project.
Bagudu said the cassava programme was well on course but the same could not be said of the sugarcane programme as the targeted milestone was yet to be attained.
Kebbi state is one of the states that the NNPC is in partnership with for the development of renewable energy.
Nigeria To Benefit As G-20 Approves Extension Of Debt Relief Till December
Finance ministers of G-20 countries have approved an extension of debt relief for the world’s poorest nations till December 2021.
David Malpass, World Bank president, made the announcement at the virtual spring meeting, on Wednesday.
TheCable had earlier reported that the G-20 countries will meet this week to consider an extension of the debt freeze.
The G-20, is a group of finance ministers and central bank governors from 19 of the world’s largest economies, including those of many developing nations, along with the European Union.
G-20 countries had established a debt service suspension initiative (DSSI) which took effect in May 2020.
Nigeria had benefited from the initiative which delivered about $5 billion in relief to more than 40 eligible countries.
The suspension period which was originally set to end on December 31, 2020 was extended to June 2021.
Malpass said the extension to December 2021 will boost economic recovery and promote job creation in low income countries.
He urged countries to be transparent in their approach to the debt service payment extension.
“On debt, we welcome a decision by the G20 to extend the DSSI through 2021. The World Bank is also working closely with the IMF to support the implementation of the G20 Common Framework,” he said.
“In both these debt efforts, greater transparency is an important element: I urge all G20 countries to disclose the terms of their financing contracts, including rescheduling, and to support the World Bank’s efforts to reconcile borrower’s debt data more fully with that of creditors.
“Participation by commercial creditors and fuller participation by official bilateral creditors will be vital. I urge all G20 countries to instruct and create incentives for all their public bilateral creditors to participate in debt relief efforts, including national policy banks. I also urge G20 countries to act decisively to incentivize the private creditors under their jurisdiction to participate fully in sovereign debt relief efforts for low-income countries.
“Debt relief efforts are providing some welcome fiscal space, but IDA countries need major new resources too, including grants and highly concessional resources. From April to December 2020, the first DSSI period, our net transfers to IDA and LDC countries were close to $17 billion, of which $5.8 billion were on grant terms.
“Our new commitments were almost $30 billion, making IDA19 the single largest source of concessional resources for the poorest countries and the key multilateral platform for support. To recover from COVID, much more is needed, and we welcome the G20’s support for advancing IDA20 by one year.”
IMF / Fiscal Monitor Report April 2021 Forecast
Unprecedented fiscal support by governments during the pandemic has prevented more severe economic contractions and larger job losses, but risks remain of long-term scarring the International Monetary Fund says in its Fiscal Monitor report released on Wednesday (April 7) in Washington, DC.
Meanwhile, such support, along with drops in revenues, has raised government deficits and debt to unprecedented levels across all country income groups, said Vitor Gaspar, Director of the Fiscal Affairs Department at the IMF.
“The first lesson one year into COVID-19 is that fiscal policy can act timely and decisively. The fiscal policy response was unprecedented in speed and size looking across countries. We also learned that countries with easier access to finance or stronger buffers were able to give more fiscal support. They’re also projected to recover faster,” said Gaspar.
Average overall deficits as a share of GDP in 2020 reached 11.7 percent for advanced economies, 9.8 percent for emerging market economies, and 5.5 percent for low-income developing countries. Countries’ ability to scale up spending has diverged.
“So, what have we learned? We’ve learned that fiscal policy is powerful and that sound public finances are crucial in order to enable that power to be used to the fullest,” stressed Gaspar.
Gaspar urged policy makers to balance the risks from large and growing public and private debt with the risks from premature withdrawal of fiscal support, which could slow the recovery.
“In the spring 2021, we emphasize differentiation across countries. Moreover, COVID-19 is fast evolving, as are the consequences from COVID-19. The fiscal policy must stay agile and flexible to respond to this fast-evolving situation.” Said Gaspar.
He also warned that the targeting of measures must be improved and tailored to countries’ administrative capacity so that fiscal support can be maintained for the duration of the crisis—considering an uncertain and uneven recovery
“Moreover, countries are very different in their structures, in their institutions, in their financial capacity and much else. Therefore, policies and policy advice have to be tailored to fit.” Said Gaspar
Gaspar concluded his remarks by emphasizing that global vaccination is urgently needed, and that global inoculation would pay for itself with stronger employment and economic activity, leading to increased tax revenues and sizable savings in fiscal support.
“A fair shot, a vaccination for everybody in the world may well be the highest return global investment ever. But the Fiscal Monitor also emphasizes the importance of giving a fair shot at life success for everyone. It documents that preexisting inequalities made COVID-19 worse and that COVID-19 in turn made inequalities worse. There is here a vicious cycle that threatens trust and social cohesion. Therefore, we recommend stronger redistributive policies and universal access to basic public services like health, education, and social security,” said Gaspar.
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