August 2020 CPI Report: Headline Inflation Soars to a 29-month high of 13.2%

There was persistent pressure on consumer prices in August 2020 as headline inflation rose to 13.2% y/y from 12.8% in July, according to the Consumer Price Index (CPI) report published this week. This is the 12th consecutive rise in inflation and the highest level since March 2018. The sharp increase in headline inflation was driven by a faster m/m inflation, which was up 10bps to 1.3%, the highest since June 2017.

Debt Report: Wide Fiscal Financing Gap and Currency Devaluation Induce Higher Debt Burden

The Q2:2020 debt data recently published by the Debt Management Office (DMO) revealed that Nigeria’s public debt stock grew 20.6% y/y and 8.3% q/q to ₦31.0tn ($85.9bn). This translates to a debt to GDP ratio of 20.4% based on 2020 GDP estimate, from 19.0% as at year-end 2019. The strong increase in the public debt stock was driven by the devaluation of the official exchange rate from N306.00/$1.00 to N361.00/$1.00 as well as external and domestic borrowing used to plug the large fiscal deficit brought by the COVID-19 pandemic.

Merchandise Trade Report: Trade Deficit Plunges Deeper as Exports Plummet

The total value of Nigeria’s merchandise trade in Q2:2020 declined by 37.6% q/q and 27.5% y/y to ₦6.2tn, the weakest since Q4:2017, as reported by the NBS. As a result, the moderation in trade deficit in the preceding quarter was short-lived as it worsened to -₦1.8tn in Q2:2020 from -₦139.9bn in Q1:2020, driven by a sharp decline in exports. This is the third consecutive trade deficit recorded since Q4:2019 and the worst performance on record.

July 2020 CPI Report: Headline Inflation at 28-month High of 12.8%

There was sustained pressure on consumer prices as inflation rose to 12.8% y/y in July 2020 from 12.6% y/y in June based on the Consumer Price Index (CPI) report published this week. This is the highest level of headline inflation since March 2018 while the streak of increasing inflation has been sustained since the land borders were shut around September 2019. The noticeable increase in headline inflation was driven by higher MoM inflation at 1.3%, the highest since June 2017.

Understanding Nigeria’s Indebtedness to China

Nigeria’s indebtedness to China has recently come into sharp focus. This has become a hot topic for good reasons. There is concern about who truly benefits from China’s infrastructure investments in developing economies through direct loans, especially given stringent conditions that could mean handing over sovereign assets to the country in the event of a default.

Insurance Sector Recapitalisation: Launching into the Deep

The Global Insurance Industry maintained steady growth in 2019 as premiums increased by 3.0% to $6.3tn after crossing the $5.0tn mark in 2018, representing 7.2% of Global GDP. Growth was supported by the improvement in both life and non-life insurance segments in China and the non-life segment in advanced markets. The non-life segment printed an impressive 3.5% growth in premiums to $3.4tn in 2019 while life insurance premiums grew by 2.2% to $2.9tn.

July 2020 MPC Meeting: Policy Parameters Unchanged

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) retained all policy rates at its fourth meeting of the year on July 20, 2020. The Monetary Policy Rate (MPR) was held at 12.5% with the asymmetric corridor at +200bps/-500bps, while the Cash Reserve Ratio (CRR) and Liquidity Ratio (LR) were unchanged at 27.5% and 30.0% respectively. There was weak sentiment towards further easing as 8 of 10 members voted to hold all policy parameters constant, compared with the unanimous vote to ease during the May 2020 meeting.

Q1:2020 Debt Report and 2021-2023 MTEF: Nigeria’s Growing Debt Sustainability Risk

The recently published Q1:2020 debt statistics showed a sustained increase in the FG’s debt profile, further putting a dent on debt sustainability even without accounting for the impact of COVID-19 yet. Nigeria’s total public debt as at Q1:2020 rose to ₦28.6tn ($79.3bn) from ₦27.4trn ($79.4bn) as at year-end 2019, with debt to GDP ratio at 19.3% (2019: 19.0%) based on annualised Q1 data.

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.