The World Bank in its 2019 Nigeria Economic Update report released on Monday, December 2,
2019 warned that the country could slide back into recession if crude oil prices fell by 25% to
USD50 per barrel.
According to the international development organisation, the number of Nigerians living in extreme poverty would have increased by more than 30 million by 2030, if its government fails to revive economic growth and create jobs for its people.
The Bank revealed that about 80% of poor households were in northern Nigeria as employment creation and income gains were concentrated on central and southern Nigeria.
According to the report, Nigeria’s estimated population growth at 2.6% which outpaced its economic growth – Q3 GDP growth printed 2.28% – was amid weak job creation as estimated 100 million Nigerians live on less than USD1.90 per day.
The World Bank in its updated report projected that the oil-rich African economy will grow by 2.1% in 2020 and 2021; although it stated that the projected outlook is vulnerable to external and domestic shocks.
The World Bank advised FG to increase domestic revenue, remove trade restrictions, expensive fuel subsidies, and improve the predictability of economic policy, amongst other things, in order to ensure more Nigerians do not fall into extreme poverty.
Similarly, on Wednesday, December 4, 2019, Moody’s Investors Service (Moody’s) changed the outlook on Nigeria’s ratings to negative from stable.
According to the report, the negative outlook reflected Moody’s view of increasing risks to Nigerian government’s fiscal strength and external position. Also, it stated that already weak government
finance is likely to weaken further given the extremely narrow government revenue base.
Moody’s noted that financing pressure amid low revenue would push government towards incurring more debts.
Notably, the credit rating firm stated that the vulnerability to an adverse change in capital flows into Nigeria is building as the country rely increasingly on foreign investors to fund its foreign exchange reserves. In another development, CBN depository corporations survey showed a 0.66% month-on-month (m-o-m) increase in Broad Money Supply (M3 money) to N35.26 trillion in October 2019.
This resulted from a 5.91% increase in Net Foreign Assets (NFA) to N14.73 trillion which offset a 2.80% decrease in Net Domestic Assets (NDA) to N20.53 trillion.
On domestic asset creation, the decline in NDA was chiefly driven by a 2.98% m-o-m decrease in Net Domestic Credit (NDC) to N34.85 trillion, mellowed by a 3.24% m-o-m fall in Other Liabilities (net) to N14.32 trillion.
Further breakdown of the NDC showed a 13.41% m-o-m decrease in Credit to the Government to N9.05 trillion; however, Credit to the Private sector increased by 1.30% to N25.79 trillion.
On the liabilities side, the 0.66% m-o-m rise in M3 Money was driven by the 3.53% increase in treasury bills held by money holding sector to N7.63 trillion, which was partly offset by a 0.08% m-o-m decline in M2 Money to N27.63 trillion.
The decrease in M2 was chiefly driven by a 4.76% moderation in Narrow Money (M1) to N10.59 trillion (of which Demand Deposits moderated by 6.39% to N8.89 trillion while currency outside banks surged by 4.77% to N1.70 trillion), as Quasi Money (near maturing short term financial instruments) increased by 3.07% to N17.04 trillion.
Reserve Money (Base Money) rose m-o-m by 6.40% to N7.45 trillion, also Bank reserves increased m-o-m by 8.49 % to N5.08 trillion, accompanied by a 2.51% increase in currency in circulation to N2.06 trillion.
We feel it is time FG diverisifed its revenue base in order to increase its spending power as over reliance on borrowings (both local and foreign) appears to be unsustainable.
Also, we note that the proposed VAT increase to boost revenue could hamper economic growth rate; instead FG should deploy the right policies to stimulate public private partnership as more private sector participation would deliver the growth rate Nigeria requires.