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Macro Economic Update - September 2018

• Foreign Reserve: reeling under the pressure of capital flow reversal: The hemorrhage in the foreign exchange reserve persisted in September with a $1.5 billion (August 18: $1.2 billion) depletion bringing total net outflow from the reserve to $3.5 billion over Q3 18 compared to accretion of $1.5 billion in Q2 18. Accordingly, the FX reserve declined to $44.3 billion at the end of September 2018 as the demand from offshore investors exiting the market created a big deep in the nation’s purse, with the apex bank now sub-aggregating demands before settlement.
• Capital flows hits rock bottom: The downturn in capital flows into Nigeria worsened in the month of August with total capital importation dipping 38% MoM to $799 million, the lowest flow recorded in 14 months. The lower flows in August reflected sizeable moderation in Foreign Portfolio Investments (-48% MoM to $421 million) and Foreign Direct Investments into the country (-54% MoM to $155 million), despite the rally in crude oil price to $74/bbl. in August (vs. $64/bbl. in December). Perusing the breakdown of FPI flows, the decline was across board with FPI flows to equity ($130 million), bonds ($7.3 million) and money-market instruments ($283.9 million) moderating 14%, 50% and 56% respectively.
• Headline inflation resumes the uptrend: In the month of August, the CPI index rose for the first time in 18 months to print at 11.23% YoY, 9bps higher than 11.14% in July. The increase was driven by waning base effects coupled with sustained slow deceleration in MoM headline inflation (-8bps to 1.05% vs. 5-year historical August MoM of 0.66%). The pressure point stemmed from food inflation which rose 2bps to 1.40% due to the ongoing lean season alongside the herdsmen and farmers crisis which affected food production in the Middle Belt. On the core sub-index, MoM inflation declined 3bps to 0.78%, reflecting moderation in key sub-components, specifically HWEGF and transport inflation which declined 25bps and 30bps to touch three-year lows of 0.45% and 0.61% respectively, despite a 1.79% MoM increase in the price of Diesel – according to data by the NBS.
• Still oil receipts driving FG’s revenue: According to data provided by the budget office, federal retained revenue over 2017 increased by 35.5% to N2.4 trillion, although 53% lower than budget revenue of N5.1 trillion. Looking through breakdowns, higher federal retained revenue was largely driven by oil revenue (+61% YoY to N1.1 billion) stemming from recovery in oil prices (average 2017: $55/bbl. vs 2016: $45/bbl.) as well as improved crude production relative to the prior year (2017: 1.9 mb/d vs 2016: 1.8 mb/d). Similarly, non-oil revenue increased 17% to N957 billion underpinned by improvements in VAT (+19% YoY to N130 billion), custom revenues (+14% YoY to N261 billion) and CIT (+19% YoY to N543 billion).
• Elsewhere, actual expenditure printed at N6.5 trillion, 26% higher than 2016 although, 13% lower than planned budget expenditure of N7.4 trillion. In terms of breakdown, recurrent expenditure accounted for the lion share (71%) of government spending directed towards personnel cost and debt service (actual: 99% and 98% of allotted budget respectively). In terms of budget implementation, total recurrent expenditure stood at 95% for the full year period. Elsewhere, capital expenditure for 2017 printed at N1.4 trillion (+8.3x YoY), with implementation for 2017 at 66%.