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FG Revenue Drops 44.6 Percent From Projection Between Jan to May 2021

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Revenue - Investors King

The federal government actualised revenue is substantially behind targeted performance as it recorded a 44.6 percent shortfall from the projected N3.3 trillion for the period between January to May 2021.

Total expenditure plan for the year had jumped to 14.8 trillion, from the initial N13.8 trillion following the supplementary budget of N982.7 billion. But not only was the revenue projection retained, the actual performance has been in limbo, indicating a widening deficit.

The January to May 2021 budget implementation report by the ministry of Finance reveals that actual revenue was N1.8 trillion on the pro-rata basis, as against the 3.3trillion projection.

Drawing a parrel with the 2020 experience, analysts at the Afrinvest West Africa, a Lagose based investment banking institution, said though the FG had effected a downward review of its revenue projections along with a similar review in expenditure, the actual revenue performance still fell significantly below target.

In its Domestic Macroeconomics Highlights released last week, the analysts stated: “At first, the shock occasioned by the emergence of the pandemic compelled a downward revision of the 2020 expenditure plan to 9.9tn from 10.5tn earlier assented to by the president. In like manner, revenue projections were also lowered to 5.4trillion from 8.4trillion to reflect the reality of both the Oil and Non-oil segments of the economy.

“In the end, the budget implementation report by the Ministry of Finance, Budget & National Planning revealed that the FG realized 73.4% (or 3.9trillion) of the revised revenue projection of 5.4trillion. Aggregate revenue was dragged down by underwhelming non-Oil revenue which fell 21.5% to 1.3trillion, below the revised projection of 1.6trillion.”

Meanwhile, the company stated that its projections that the country’s Gross Domestic Products (GDP) would clutch out of the COVID-19-induced recession of 2020 were on track as the country recorded a growth rate of 5.0 percent in the first half of the year (H1’21).

According to analysts at Afrinvest Financial Services company,

“At the beginning of the year, we projected in our outlook report “A Blurry Path to Recovery” that the Nigerian economy in 2021 would clutch out of the COVID-19-induced recession of 2020, albeit at a modest 2.5 percent growth rate.

“Our position was hinged on the expectation of improved non-oil sector activities, to be driven jointly by the full impact of the monetary and fiscal stimuli rolled out in 2020 and the reduction in external shocks.

“We highlighted that the reopening of sub-sectors and land borders should support the recovery of key non-oil activities – the Manufacturing, Services, and Trade sectors.

“We predicted that the Agriculture sector would benefit from the recovery of supply chain activities and the incentive of a reduction in the import duty on farm tractors (from 35.0% to 5.0%) and trucks (from 35.0% to 10.0%) as stipulated in the Finance Act 2020.

“ In all of these projections, we maintained a cautious position on the recovery dynamics, as we emphasized that potential downside risk factors such as a resurgence of the COVID-19 pandemic, a further devaluation of the Naira, weak external position, and the continuous cap on oil supply are capable of negating the potential impact of the recovery catalysts earlier highlighted,” they said.

They noted that based on the realities that played out in H1’21, their projections were largely on track, except for oil prices which rebounded stronger than anticipated due to the sharp recovery of economic activities in AEs and some EMDEs led by China.

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Economy

Goldman Sachs Urges Bold Rate Hike as Naira Weakens and Inflation Soars

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Central Bank of Nigeria (CBN)

As Nigeria grapples with soaring inflation and a faltering naira, Goldman Sachs is calling for a substantial increase in interest rates to stabilize the economy and restore investor confidence.

The global investment bank’s recommendation comes ahead of the Central Bank of Nigeria’s (CBN) key monetary policy decision, set to be announced on Tuesday.

Goldman Sachs economists, including Andrew Matheny, argue that incremental rate adjustments will not be sufficient to address the country’s deepening economic challenges.

“Another 50 or 100 basis points is certainly not going to move the needle in the eyes of an investor,” Matheny stated. “Nigeria needs a bold, decisive move to curb inflation and regain investor trust.”

The CBN, under the leadership of Governor Olayemi Cardoso, is anticipated to raise interest rates by 75 basis points to 27% in its upcoming meeting.

This would mark a continuation of the aggressive tightening campaign that began in May 2022, which has seen rates increase by 14.75 percentage points.

Despite this, inflation has remained stubbornly high, highlighting the need for more substantial measures.

The current economic landscape is marked by severe challenges. The naira’s depreciation has led to higher import costs, fueling inflation and eroding consumer purchasing power.

The CBN has attempted to ease the currency’s scarcity by selling dollars to local foreign exchange bureaus, but these efforts have yet to stabilize the naira significantly.

“Developments since the last meeting have definitely been hawkish,” noted Matheny. “The naira has weakened further, exacerbating inflationary pressures. The CBN’s policy needs to reflect this reality more aggressively.”

In response to the persistent inflation and naira weakness, analysts are urging the central bank to implement a more coherent strategy to manage the currency and inflation.

James Marshall of Promeritum Investment Management LLP suggested that the CBN should actively participate in the foreign exchange market to mitigate the naira’s volatility and restore market confidence.

“The central bank needs to be a more consistent and active participant in the forex market,” Marshall said. “A clear strategy to address the naira’s weakness is crucial for stabilizing the economy.”

The CBN’s decision will come as the country faces a critical period. With inflation expected to slow due to favorable comparisons with the previous year and new measures to reduce food costs, including a temporary import duty waiver on wheat and corn, there is hope that the economic situation may improve.

However, analysts anticipate that the CBN will need to implement one final rate hike to solidify inflation’s slowdown and restore positive real rates.

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Economy

Currency Drop Spurs Discount Dilemma in Cairo’s Markets

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Egyptian pound

Under Cairo’s scorching sun, the bustling streets reveal an unexpected twist in dramatic price drops on big-ticket items like cars and appliances.

Following March’s significant currency devaluation, prices for these goods have plunged, leaving consumers hesitant to make purchases amid hopes for even better deals.

Mohamed Yassin, a furniture store vendor, said “People just inquire about prices. They’re afraid to buy in case prices drop further.” This cautious consumer behavior is posing challenges for Egypt’s consumer-driven economy.

In March, Egyptian authorities devalued the pound by nearly 40% to stabilize an economy teetering on the edge. While such moves often lead to inflation spikes, Egypt’s case has been unusual.

Unlike other nations like Nigeria or Argentina, where costs soared post-devaluation, Egypt is witnessing falling prices for high-value items.

Previously inflated prices were driven by a black market in foreign currency, where importers secured dollars at exorbitant rates, passing costs onto consumers.

Now, with the pound stabilizing and foreign currency more accessible, retailers are struggling to sell inventory at pre-devaluation prices.

Despite price reductions, the overall consumer market remains sluggish. The automotive sector has seen a near 75% drop in sales compared to pre-crisis levels.

Major brands like Hyundai and Volkswagen have slashed prices by about a quarter, yet buyers remain cautious.

The economic strain is not limited to luxury items. Everyday expenses continue to rise, albeit more slowly, with anticipated hikes in electricity and fuel prices adding to the pressure.

Experts highlight a period of adjustment as both consumers and traders navigate the volatile exchange-rate environment. Mohamed Abu Basha, head of research at EFG Hermes, explains, “The market is taking time to absorb recent fluctuations.”

Meanwhile, businesses face declining sales, impacting their ability to manage operating costs. Yassin’s store has offered discounts of up to 50% yet remains quiet. “We’ve tried everything, but everyone is waiting,” he laments.

The devaluation has spurred a shift in economic dynamics. Inflation has eased, but the pace varies across sectors. Clothing and transportation costs are up, while food prices fluctuate.

With the phasing out of fuel subsidies and potential electricity price increases, Egyptians are bracing for further financial strain. The recent 300% rise in subsidized bread prices adds another layer of concern.

The situation underscores the balancing act between maintaining consumer confidence and attracting foreign investment.

Economists suggest potential stimulus measures, such as lowering interest rates or increasing public spending, to boost demand.

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Economy

MPC Meeting on July 22-23 to Tackle Inflation as Rates Set to Rise Again

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Interbank rate

The Monetary Policy Committee (MPC) is set to convene on July 22-23, 2024, amid soaring inflation and economic challenges in Nigeria.

Led by Olayemi Cardoso, the committee has already increased interest rates three times this year, raising them by 750 basis points to 26.25 percent.

Nigeria’s annual inflation rate climbed to 34.19 percent in June, driven by rising food prices. Despite these pressures, the Central Bank of Nigeria (CBN) projects that inflation will moderate to around 21.40 percent by year-end.

Market analysts expect a further rate hike as the committee seeks to rein in inflation. Nabila Mohammed from Chapel Hill Denham anticipates a 50–75 basis point increase.

Similarly, Coronation Research forecasts a potential rise of 50 to 100 basis points, given the recent uptick in inflation.

The food inflation rate reached 40.87 percent in June, exacerbated by security issues in key agricultural regions.

Essential commodities such as millet, garri, and yams have seen significant price hikes, impacting household budgets and savings.

As the MPC meets, the National Bureau of Statistics is set to release data on selected food prices for June, providing further insights into the inflationary trends affecting Nigerians.

The upcoming MPC meeting will be crucial in determining the trajectory of Nigeria’s monetary policy as the government grapples with economic instability.

The focus remains on balancing inflation control with economic growth to ensure stability in Africa’s largest economy.

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