An analysis of the macroeconomic policies (fiscal and monetary) and other leading economic indicators such as (stock market performance) in the one year period since the present administration was sworn in tends to show a mixed scorecard.
Jonathan Goodluck- President of the Federal Republic of Nigeria
Consumer Price inflation (CPI) in May 2011 stood at 12.4 percent, while by May 2012 the CPI had risen to 12.9 percent on the back of higher fuel and food costs. The Central Bank of Nigeria (CBN), which struggled with controlling inflation for most of 2011, ended up raising its Monetary Policy Rate (MPR) by 5.75 percent in 2011. The MPR has moved from 8 percent to 12 percent in the period under review (a 50 percent rise).
The higher interest rates in turn led to an upward adjustment in bond yields in the past year, with the resultant effect of higher borrowing costs for the government.
Nigerian banks on the back of higher interest rates also increasingly purchased Federal Government bonds (FGN) and treasury bills to take advantage of the attractive Net Interest Margins (NIM), (a measure of the difference between the interest income generated by banks and the amount of interest paid out for deposits).
Private sector credit extension by banks moved from N9.85 trillion in May 2011, to N14.2 trillion as of May 2012 – a 44.1 percent rise, largely due to the resolution of the bank crisis and the sale of non-performing loans (NPL) by banks to the Asset Management Corporation of Nigeria (AMCON).
Total banking sector NPL ratio that peaked at over 35 percent of total industry loans in 2010 has also fallen sharply to less than 10 percent for the sector as of the third quarter of 2011.
Nigeria’s external reserves are up 12.6 percent in the one year since the Jonathan administration was sworn in. The reserves have grown from $33.3 billion to $37.5 billion, largely a huge positive for the administration, after ending 2011 mostly flat.
Analysts say the external reserves and the naira have partly firmed on the back of a sharp fall in imports of petroleum products due to the reduction in arbitrage opportunities after the partial removal of fuel subsidy that saw petrol prices increase from N65 per litre to N97 per litre, a 49.2 percent hike.
A downside to the fuel subsidy removal however has been the fall in disposable incomes and consumption, which helped to push Nigeria’s gross domestic product (GDP) growth rate down to 6.1 percent in the first quarter of 2012.
The naira has also been supported by offshore portfolio inflows into the naira-denominated treasury bills (T-bills) and sovereign bonds, after the CBN in June 2011, lifted the one-year minimum hold period on Nigerian bonds by foreign investors.
On the fiscal side, the excess crude account (ECA) that is supposed to hold any oil earnings above the budget benchmark price has fallen by 33.3 percent in the review period, while the Sovereign Wealth Fund (SWF) has yet to effectively take off. The ECA fell to $4.6 billion from the $6.9 billion it was a year earlier.
Analysts have warned about the urgent need for an effective launch of the SWF, to proactively address the risks of future external shocks and smooth the boom and bust oil cycles.
The ECA balance at less than 2 percent of GDP vs. a median of 67 percent among oil exporting countries is critically low, pointing to an exceptionally loose fiscal environment, which makes monetary policy harder to conduct in such an environment.
Nigeria’s revenue collection also has room for improvement. Consolidated government revenue at 17-22 percent of GDP this year is lower than the average for sub-Saharan Africa (SSA) and that of the SSA oil-exporting countries. This means the government needs to mobilise additional fiscal revenue from a wider tax pool and beyond the oil sector.
The country’s domestic debt stock is up 9 percent in the review period, moving from N4.87 trillion to N5.96 trillion, according to data from the Debt Management Office (DMO). The DMO argues that Nigeria’s debt is sustainable on the back of a favourable debt to GDP ratio. Nigeria’s debt to GDP at 17.45 percent is lower than the international standard threshold for Nigeria’s peer group at 40 percent.
The Nigerian Stock Exchange All Share Index, a leading economic indicator, is down 13.93 percent in the one year period, moving from 25, 829 to 22,232. The index is up 7.18 percent year-to-date as investors bet that the banking crisis is over and banks start to ramp up lending.
The Bloomberg NSE Banking 10 index, which comprises of the top 10 capitalised and most liquid companies in the Nigerian banking sector, down 33.7 percent last year, is up 18.18 percent year-to-date, outperforming the NSE up 7.18 percent for the same period.
Patrick Atuanya Via Businessdayonline.com