Moody’s Report on Nigerian Banks: FX Liquidity Pressure Looms Large

With elevated external shocks, Nigeria’s economy has been hit hard and the banking system would be impacted. Moody’s ratings agency in a recent report cited risks of dollar funding challenges for banks amid declining oil revenue, weak foreign investment inflows and lower remittances. While banks are more resilient given current deposit and liquidity levels, the agency indicated that there are vulnerabilities, indicating that Nigerian banks could face a resurgence of the foreign currency liquidity pressures witnessed between 2016 and 2017.

Nigeria’s Economic Sustainability Plan: Grand Ambitions but Weak Capacity

In early April 2020, the FG inaugurated the Economic Sustainability Committee (ESC) with a mandate to develop a response to deal with the health and economic impacts of the COVID-19 pandemic. The fall in oil prices to a two-decade low of around $20.0/bbl. made this urgent, much like how the oil price crash between 2014 and 2016 necessitated the Economic Recovery and Growth Plan (2017-2020) which is nearing completion.

2020 Mid-Year Outlook: COVID-19 Pandemic Reframes Narrative

If our tone at the end of last year was grim, it wasn’t grim enough. In our 2020 Outlook, At the Cliff’s Edge, published last December, we cautioned that the global economy was due to face more turmoil in the year, but were cautiously optimistic about a Sino-US trade truce driving modest global growth. However, the onset of a global pandemic has seen economies collapsing quicker than during the Great Depression and increased volatility across markets than ever before – and all of this while many of us were confined to home.

Q1:2020 GDP: A broad-based Moderation in the Non-Oil Sector Drags Growth Lower at 1.9%

More data point on the performance of the economy so far in 2020 emerged this week, with the release of Q1:2020 GDP and capital importation statistics. Starting with economic growth, Q1:2020 GDP report revealed that the Nigerian economy expanded at a slower pace of 1.9% Y-o-Y (vs 2.6% in Q4:2019), the weakest since Q3:2018. This performance was largely supported by growth in the oil sector amid a much slower expansion in the non-oil sector. The oil sector grew 5.1% Y-o-Y in Q1:2020 (vs 6.4% in Q4:2019) as oil production rose 3.0% Q-o-Q and 4.0% Y-o-Y to 2.1mbpd, the highest since Q4:2015.

CPI Report: Slow but Steady Rise in Consumer Prices

The April 2020 Consumer Price Index report published this week showed an 8bps uptick in headline inflation to 12.34% Y-o-Y from 12.26% in March 2020, the highest since April 2018. We attribute the marginal increase to weak economic activity. We note the increase in double-digit core inflation at 10.0% from 9.7% in March 2020, the highest since April 2018. Likewise, food inflation was marginally higher at 15.03% from 14.98% respectively. This is despite the planting season and the disruption to the agriculture value chain in Nigeria due to COVID-19.

COVID-19 Compels Sharp Fiscal Adjustments

As falling oil prices and economic lockdowns mean weaker revenue prospects in 2020, fiscal policymakers have been compelled to match budget ambitions with current realities. Accordingly, the Federal Executive Council (FEC) on Wednesday approved the revised Medium Term Expenditure Framework (MTEF) for 2020-2022 and the proposed amendment to the 2020 budget, with both awaiting the approval of the National Assembly.

2019 Debt Report: FG’s Debt Profile Still Aloft

Data published by the Debt Management Office (DMO) earlier in the week revealed a 12.4%Y-o-Y rise in total public debt to ₦27.4tn (US$84.1bn) from ₦24.4trn (US$79.4bn) in FY:2018, following a 21.1% growth in FG’s borrowings to ₦23.3tn. The FG’s total domestic debt grew 11.7% Y-o-Y to ₦14.3tn as promissory notes surged 121.1%Y-o-Y to ₦732.6bn, driven by the Federal Executive Council (FEC)'s approval of ₦3.4tn new notes for the settlement of accumulated arrears. Similarly, total FGN Savings bonds and FGN bonds also rose 17.9% and 12.7%Y-o-Y to ₦12.7bn and ₦10.5tn respectively.

Covid-19 Dampens Global Growth Prospects

The International Monetary Fund (IMF) and the World Bank held 2020 spring meetings this week, the first virtual spring gathering in light of the current pandemic. This year’s meeting included briefings on global and regional economic outlook, especially in the context of the COVID-19 pandemic. This week we review global and Nigeria’s growth prospects in the face of the public health and economic crises caused by COVID-19.

Global Growth Projected to Contract by 3.0% in 2020

COVID-19: Sub-Saharan Africa’s 1st recession may be in 25 years –World Bank

The World Bank Group says Coronavirus (COVID-19), is taking Sub-Saharan Africa towards its first recession in 25 Years.

The bank stated this in a statement where it explained that growth in Sub-Saharan Africa had been significantly impacted by the COVID-19 outbreak, and was predicted to fall sharply from 2.4 per cent in 2019 to -2.1 to -5.1 per cent in 2020.

The bank stated that it based its forecast on the latest Africa’s Pulse, the World Bank’s twice-yearly economic update for the region.

COVID-19 Spillovers: Are the Proposed Economic Stimulus Measures Enough?

Globally, countries are responding to the unprecedented economic challenges brought by COVID-19.  In Nigeria, the CBN recently announced some stimulus measures to support the real sector given COVID-19 spillovers. Some of the measures announced include the reduction of interest rate to 5.0% from 9.0% and a one-year moratorium on all CBN intervention facilities. The apex bank also created a ₦50.0bn targeted credit facility to support households and SMEs as well as a special credit support of ₦1.1tn for the manufacturing and the healthcare sectors respectively.