July 19, 2024/FBNQuest Research

In the latest economic outlook, “Global Economy in a Sticky Spot,” the International Monetary Fund (IMF) lowered Nigeria’s 2024 real GDP growth forecast by 0.2% to 3.1%, citing weaker-than-anticipated economic activity in Q1 2024. This downgrade also reduced the growth forecast for sub-Saharan Africa. Conversely, the World Bank views Nigeria’s macro-fiscal reforms positively and continues to provide financing packages to support these efforts, focusing on improving critical sectors and the welfare of citizens.

• The latest World Bank package for Nigeria includes US$751.9m in funding, a portion of a US$1.5bn loan allocated for the country’s economic reforms.
• This funding is part of the Nigeria Reforms for Economic Stabilisation to enable Transformation (RESET) initiative.
• It includes a US$750m loan from the International Bank for Reconstruction and Development (IBRD) and a US$750m credit from the International Development Association (IDA).
• On economic growth, the National Bureau of Statistics (NBS) most recent report indicates that Nigeria’s economy grew for the fourteenth consecutive quarter in Q1 2024.
• However, while the 2.98% year-on-year (Y-O-Y) GDP growth in Q1 2024 was higher than the 2.31% recorded in Q1 2023, it was lower than the 3.46% Y-o-Y growth reported in Q4 2023.
• On unemployment, the most recent NBS labour survey data for Q3 2023 indicated a decline in the labour participation rate to 79.5%, down by 50 bps from the Q2 2023 rate.
• The data also points to a shift in workforce dynamics due to macroeconomic challenges, with 87.3% of the labour force being self-employed and 12.7% being employees.
• Noteworthy, the government and labour unions, previously in disagreement over the minimum wage in June, recently reached an agreement on a new rate of N70,000 (US$44.0) per month, up from the previous rate of N30,000 (US$18.9).
• Regarding monetary policy, the Monetary Policy Committee (MPC) remained committed to its hawkish stance to address the persistently high inflation.
• At its last meeting in May, the committee unanimously voted to raise the MPR by 150bps to 26.25% and maintain the asymmetric corridor at +100/-300 basis points.
• However, inflation is driven by supply constraints, worsened by security issues in food-producing regions, with ongoing naira devaluation adding to the inflationary pressures.
• On July 18th, the naira declined to N1,640/USD, matching its parallel market rate after reaching a four-month low of N1,612.5/USD on the official market the previous day.
• Addressing the naira depreciation, the CBN sold about US$20,000 to each registered BDC at N1,450/USD, with conditions of facilitating end-user purchases.
• The second half of 2024 is crucial for implementing fiscal policies to boost economic growth.
• Previously, we had anticipated that headline inflation would start decelerating due to the combination of high base effects from the prior year and tight monetary policy.
• However, the recent hike in the minimum wage to N70,000 from N30,000 poses potential downside risks for inflationary pressure.