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IMF’s Perspective on Nigeria via its Article IV Mission – Coronation Economic Note



IMF global - Investors King

The IMF recently published its Article IV on Nigeria. The consultations with Nigerian officials on economic developments and policies ended in mid-January ’23.

According to the publication, Nigeria has recovered from the impact of the covid-19 pandemic on the back of favorable oil prices as well as a boost to consumption patterns.

This was evident in the consecutive q/q growth figures recorded in 2022. Additionally, the report emphasized the importance of reforming fiscal, structural, and exchange rate policies in order to restore macroeconomic stability.

For national output, the Fund projects a moderate GDP growth of 3.2% in 2023. Non-oil growth is expected to broaden to 3.0% largely driven by agriculture, information technology, and trade. Oil production is expected to remain below pre-pandemic levels in the mediumterm largely due to production shut-ins and divestments by IOCs. In our base-case scenario, our estimate for GDP growth is 2.8% y/y.

However, it is as high as 3.9% y/y in our optimistic case scenario.

Headline inflation is expected to moderate in 2023, the IMF projects a headline inflation rate of 17.4% y/y at end-2023. We note that the headline inflation stood at 21.82% in January ’23. Our projection for headline inflation in 2023 is slightly higher at 18% y/y.

According to the IMF, the near-term outlook faces downside risks such as higher global food and fertilizer prices and continued widening of the parallel market premium. These could result in a prolonged high inflation environment.

On the fiscal landscape, despite rising oil prices, the general government fiscal deficit is estimated to have widened further in 2022, mainly due to high fuel subsidy costs. The Fund projects that fiscal deficit could be above 6% of total GDP and public debt could rise to 43% of total GDP by 2027 if revenue mobilization efforts are not strengthened and costly fuel subsidies as well as rising debt servicing costs remain.

Regarding tax measures, the IMF advised the authorities to adopt tax rates comparable to Nigeria’s peers in the Economic Community of West African States (ECOWAS). These include raising the VAT rate to at least 10% by 2023 and aligning the VAT rate with the ECOWAS average of 15% by 2027, as well as increasing the excise rates on alcoholic and tobacco products.

The IMF welcomed measures taken by the CBN to tighten liquidity and curb inflationary pressure as well as steps taken to securitize CBN’s existing stock of overdrafts. We note that emphasis was placed on phasing out credit intervention programs driven by the CBN.

However, further policy rate hikes to tame inflation are encouraged. In our base case scenario, we expect a +150bps policy rate hike in 2023 to 18%. However, in our downturn scenario we see MPR at 20%.

In H2 2022, the gap between the parallel market and NAFEX exchange rate stayed above 50%. The IMF reaffirmed its previous recommendations that the authorities should consider a unified and market clearing exchange rate in a bid to address persistent fx shortages, reduce capital outflow, and narrow the parallel market premium. Meanwhile, the accretion of FX reserves is projected to remain limited over the medium term. From our vantage point, we expect the external reserves level to be at +/- USD35bn in 2023.

The report further stressed the importance of well-targeted social assistance programs. The IMF recommends increasing social spending by up to 1.7% of GDP cumulatively between 2023-2027 in a bid to cushion the impact of high inflation and expected fuel subsidy removal.

We understand that the World Bank plans to disburse USD1.5bn in 2023 with 50% (USD750m) expected to be channeled towards social assistance programs.

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Nigeria’s N3.3tn Power Sector Rescue Package Unveiled



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President Bola Tinubu has given the green light for a comprehensive N3.3 trillion rescue package.

This ambitious initiative seeks to tackle the country’s mounting power sector debts, which have long hindered the efficiency and reliability of electricity supply across the nation.

The unveiling of this rescue package represents a pivotal moment in Nigeria’s quest for a sustainable energy future. With power outages being a recurring nightmare for both businesses and households, the need for decisive action has never been more urgent.

At the heart of the rescue package are measures aimed at settling the staggering debts accumulated within the power sector. President Tinubu has approved a phased approach to debt repayment, encompassing cash injections and promissory notes.

This strategic allocation of funds aims to provide immediate relief to power-generating companies (Gencos) and gas suppliers, while also ensuring long-term financial stability within the sector.

Chief Adebayo Adelabu, the Minister of Power, revealed details of the rescue package at the 8th Africa Energy Marketplace held in Abuja.

Speaking at the event themed, “Towards Nigeria’s Sustainable Energy Future,” Adelabu emphasized the government’s commitment to eliminating bottlenecks and fostering policy coherence within the power sector.

One of the key highlights of the rescue package is the allocation of funds from the Gas Stabilisation Fund to settle outstanding debts owed to gas suppliers.

This critical step not only addresses the immediate liquidity concerns of gas companies but also paves the way for enhanced cooperation between gas suppliers and power generators.

Furthermore, the rescue package includes provisions for addressing the legacy debts owed to power-generating companies.

By utilizing future royalties and income streams from the gas sub-sector, the government aims to provide a sustainable solution that incentivizes investment in power generation capacity.

The announcement of the N3.3 trillion rescue package comes amidst ongoing efforts to revitalize Nigeria’s power sector.

Recent initiatives, including tariff adjustments and regulatory reforms, underscore the government’s determination to overcome longstanding challenges and enhance the sector’s effectiveness.

However, challenges persist, as highlighted by Barth Nnaji, a former Minister of Power, who emphasized the need for a robust transmission network to support increased power generation.

Nnaji’s advocacy for a super grid underscores the importance of infrastructure development in ensuring the reliability and stability of Nigeria’s power supply.

In light of these developments, stakeholders have welcomed the unveiling of the N3.3 trillion rescue package as a decisive step towards transforming Nigeria’s power sector.

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Nigeria’s Inflation Climbs to 28-Year High at 33.69% in April



Nigeria's Inflation Rate - Investors King

Nigeria is grappling with soaring inflation as data from the statistics agency revealed that the country’s headline inflation surged to a new 28-year high in April.

The consumer price index, which measures the inflation rate, rose to 33.69% year-on-year, up from 33.20% in March.

This surge in inflation comes amid a series of economic challenges, including subsidy cuts on petrol and electricity and twice devaluing the local naira currency by the administration of President Bola Tinubu.

The sharp rise in inflation has been a pressing concern for policymakers, leading the central bank to take measures to address the growing price pressures.

The central bank has raised interest rates twice this year, including its largest hike in around 17 years, in an attempt to contain inflationary pressures.

Governor of the Central Bank of Nigeria has indicated that interest rates will remain high for as long as necessary to bring down inflation.

The bank is set to hold another rate-setting meeting next week to review its policy stance.

A report by the National Bureau of Statistics highlighted that the food and non-alcoholic beverages category continued to be the biggest contributor to inflation in April.

Food inflation, which accounts for the bulk of the inflation basket, rose to 40.53% in annual terms, up from 40.01% in March.

In response to the economic challenges posed by soaring inflation, President Tinubu’s administration has announced a salary hike of up to 35% for civil servants to ease the pressure on government workers.

Also, to support vulnerable households, the government has restarted a direct cash transfer program and distributed at least 42,000 tons of grains such as corn and millet.

The rising inflation rate presents significant challenges for Nigeria’s economy, impacting the purchasing power of consumers and adding strains to household budgets.

As the government continues to grapple with inflationary pressures, policymakers are faced with the task of implementing measures to stabilize prices and mitigate the adverse effects on the economy and livelihoods of citizens.

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FG Acknowledges Labour’s Protest, Assures Continued Dialogue



Power - Investors King

The Federal Government through the Ministry of Power has acknowledged the organised Labour request for a reduction in electric tariff.

The Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) had picketed offices of the National Electricity Regulatory Commission (NERC) and Distribution Companies nationwide over the hike in electricity tariff.

The unions had described the upward review, demanding outright cancellation.

Addressing State House correspondents after the Federal Executive Council (FEC) meeting on Tuesday, Minister of Power, Adebayo Adelabu, said labour had the right to protest.

“We cannot stop them from organizing peaceful protest or laying down their demands. Let me make that clear. President Bola Tinubu’s administration is also a listening government.”

“We have heard their demands, we’re going to look at it, we’ll make further engagements and I believe we’re going to reach a peaceful resolution with the labor because no government can succeed without the cooperation, collaboration and partnership with the Labour unions. So we welcome the peaceful protest and I’m happy that it was not a violent protest. They’ve made their positions known and government has taken in their demands and we’re looking at it.

“But one thing that I want to state here is from the statistics of those affected by the hike in tariff, the people on the road yesterday, who embarked on the peaceful protests, more than 95% of them are not affected by the increase in the tariff of electricity. They still enjoy almost 70% government subsidy in the tariff they pay because the average costs of generating, transmitting and distributing electricity is not less than N180 today.

“A lot of them are paying below N60 so they still enjoy government’s subsidy. So when they say we should reverse the recently increased tariff, sincerely it’s not affecting them. That’s one position.

“My appeal again is that they should please not derail or distract our transformation plan for the industry. We have a clearly documented reform roadmap to take us to our desired destination, where we’re going to have reliable, functional, cost-effective and affordable electricity in Nigeria. It cannot be achieved overnight because this is a decay of almost 60 years, which we are trying to correct.”

He said there was the need for sacrifice from everybody, “from the government’s side, from the people’s side, from the private sector side. So we must bear this sacrifice for us to have a permanent gain”.

“I don’t want us to go back to the situation we were in February and March, where we had very low generation. We all felt the impact of this whereby electricity supply was very low and every household, every company, every institution, felt it. From the little reform that we’ve embarked upon since the beginning of April, we have seen the impact that electricity has improved and it can only get better.”

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