The World Bank is reportedly toying with Nigeria over the proposed $1.5 billion dollars put forward since February 2020 but yet to be disbursed 6 months after.
Information from Fayer and Fraser an exclusive newsletter edited by Feyi Fawehinmi, a respected Financial analyst, indicates the loan from the World Bank has remained elusive as the multilateral institution has continued to move the “goalposts” through stringent conditions that are unprecedented.
According to Feyi, It is difficult to understand why the World Bank appears to be leading Nigeria on a merry dance over a relatively small loan amount that is less than half of what the IMF already approved and disbursed. One can consider a scenario where the funds were actually to help with Nigeria’s response to the pandemic and it had not yet been released by the end of August.
The World Bank approached Nigeria in February 2020 for a possible loan disbursement as the world envisioned the economic impact of COVID-19 on the global economy particularly emerging markets in sub-Saharan Africa like Nigeria. Yet after several presentations that lasted between March and April, the loan remains un-disbursed. The loan was meant to be disbursed in June 2020.
Several reports at the time indicated that the World Bank had laid out conditions upon which the Apex bank was to lend money to Nigeria among which are a unification of the exchange rate, removal of fuel subsidy, and introduction of a cost-reflective tariff. This is despite being a loan tied to the Covid-19 pandemic.
Rather than approve the loan, the World Bank then came up with a new demand – the CBN had to clear the backlog of foreign exchange demand which it calculated at US$6 billion. The CBN’s own calculations put the backlog at US$2 billion while in a separate calculation, the IMF put the figure at US$2.5 billion. To be clear, the backlog from foreign dividends, such as the one that recently embarrassed Nigeria’s largest bank, as well as those from correspondent banks is not included in CBN’s calculations. Still, it will be a stretch to imagine that even with those numbers included the number would reach the World Bank’s US$6 billion figure.” Faye and Fraser
What is the World Bank’s intention?
According to Faye and Fraser “One speculation is that the World Bank is unhappy that foreign portfolio investors are now stuck in the country unable to get the dollars they need to exit their positions and leave the country.”
As the source has often reported, Nigeria has a foreign exchange pent-up demand between $2-3 billion from both foreign and local portfolio investors. Nevertheless, Faye and Fraser wonders why this is a condition precedent to disbursement of the loan
“But this is also not the first time the World Bank will lead Nigeria on such a dance that ultimately ends in disappointment. In 2016 there were extensive talks about a loan which went on and on and ended with no funds being disbursed. Most disturbing is that the World Bank now seems to be using the media to selectively leak information to the public designed to paint a picture of the country’s resistance to reforms as the sole reason for the delay,” Fayer and Fraser stated.
A top-level government official who spoke to the source on condition of anonymity also wondered why the World Bank was placing so much emphasis on conditionalities that do not relate to the essence of the loan. “They have not asked for things like how many COVID-19 centers have we built? How well are we containing the spread of the virus and what palliatives has the government put in place to alleviate the poor? Have we properly deployed some of the funds and grants already raised by the government” the source asks?
Why this matters: The government, particularly the central bank has been chastised for months for taking too long to meet the conditions of the World Bank. However, with the prolonged delays to disbursement and spurious conditions, it appears there is more than meets the eye. Nigeria is significantly under pressure for a loan and has ruled out on any Eurobond this year. It could reconsider this move if the World Bank continues to delay.
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The moment Emefiele predicted Nigeria will be out of recession in Q4 2020
The CBN Governor had expressed optimism last year that the country was going to come out of recession in Q4 of 2020.
It is no longer news that Nigeria, Africa’s largest economy, against all expectations exited recession as its Gross Domestic Product (GDP) grew by 0.11% in the last quarter of 2020 (year on year).
However, the Governor of the Central Bank of Nigeria, Godwin Emefiele, had expressed optimism last year that the country was going to come out of recession in the fourth quarter of 2020.
According to the report released by the National Bureau of Statistics (NBS), this is the first positive quarterly growth in the last 3 quarters following growth in telecommunications and agriculture which seem to make up for the sharp drop in oil prices and production.
The surprising rebound of the Nigerian economy is coming against the prediction of the country’s Minister for Finance, Budget and National Planning, Zainab Ahmed, who while speaking at the 26th Nigerian Economic Summit, said that Nigeria is expected to exit recession by the first quarter of 2021.
The CBN Governor had during the November 2020 Monetary Policy Committee meeting, predicted that the country was going to come out of recession by the fourth quarter of 2020.
This as he said that many analysts expressed doubts about that and were waiting to prove him wrong.
In a video during a press conference as seen by Themoneymetrics, Emefiele said, “You said that in November MPC, I was cautiously optimistic that fourth-quarter GDP will be positive thereby taking Nigeria out of a recession that I was aggressively optimistic that during the first quarter, we will exit recession. I am praying very seriously that my prayer should be heard because I know that people are waiting to put my neck on the chopping board to say that I do not know my work.’’
What you should know
- Despite Nigeria’s surprise exit from recession, experts have still expressed their reservations about the country’s weak economy which is faced with several challenges for businesses ranging from foreign exchange pressure, high unemployment level, increasing consumer prices, serious security challenges, weak investor confidence, etc.
- This is as the growth in GDP was primarily driven by the Information and Communication sector and the Agricultural sector.
- However, the surprise rebound of the economy means that Nigeria may recover faster than expected as crude oil prices and production increase this year.
- This also shows that the country needs to redouble its efforts in the growth of the non-oil sector which contributed 94.13% to Nigeria’s GDP.
Nigeria generates N424.71 billion VAT in Q3 2020
The sectoral distribution of VAT data increased from N327.20 billion in the Second quarter of 2020 to N424.71 billion by the end of Q3 2020.
Nigeria’s value-added tax (VAT) collection increased from N327.2 billion recorded in Q2 2020 to N424.71 billion in Q3 2020, as other manufacturing sector led the pack with N47.07 billion remittance.
This was disclosed by the National Bureau of Statistics (NBS) in its Sectoral Distribution of Value Added Tax Q3 2020 report released on Monday.
VAT Collections in the quarter indicates a 29.8% increase as against N327.2 billion recorded in the previous quarter and 54.37% increase compared to N275.12 billion generated in the corresponding quarter of 2019.
- Other manufacturing, generated the highest amount of VAT with N47.07 billion and closely followed by Professional Services, which generated a sum of N44.01 billion.
- Commercial and Trading generated N21.18 billion while Mining, Textile and Garment industry generated the least with N63.5 million and N346.27 million respectively.
- Out of the total amount generated in Q3 2020, N214.66 billion was collected locally as Non-Import VAT while N115.34 billion was collected as Non-Import VAT for foreign.
- The balance of N94.70billion was generated as NCS-Import VAT.
- Out of the 28 sectors, 24 of them recorded improved VAT remittances during the period, compared to Q2 2020 while 4 of them recorded decline.
The N424.7 billion generated in Q3 2020, brings the total VAT collections year-to-date to N1.08 trillion, which is 22.87% higher than N876.1 billion generated as at the same period in 2019.
Reasons for Increment
Since manufacturing sector is the biggest contributor to VAT during the quarter, the increase can mainly be attributed to the increase in manufacturing activities.
However, it is worth noting that offshore operations recorded the highest growth of 193% in VAT remittances during the period.
The increase in VAT will grow government revenue base especially in a time when oil revenue is dwindling, this could in turn be invested in infrastructure, other developmental projects, etc.; thereby, stimulating the nation’s economic growth.
The rise in value added tax is a welcome development to the Nigerian government in their bid to diversify the economy and widen their revenue base from a fiscal point of view.
Nigeria’s inflation rate hits 13.71%
Nigeria’s inflation rate has risen to 13.71% as prices jump in almost every sector.
Nigeria recorded a high rate of inflation in September, the highest since March 2018.
The country’s inflation rate rose to 13.71 percent in September 2020, 0.49 percent points higher than the rate recorded in August 2020 (13.22%).
The National Bureau of Statistics (NBS) in its CPI/Inflation report for September also revealed that the Headline index increased by 1.48 percent in September 2020. This is 0.14 percent rate higher than the rate recorded in August 2020 (1.34) percent.
Food inflation stood at 16.66 percent in Sept 2020 from 16.00 percent in Aug 2020. Core Inflation at 10.58 percent in Sept 2020 from 10.52 percent in Aug 2020. This was reportedly caused by increase in prices of bread and cereals, potatoes, yam and other tubers, meat, fish, fruits and oils and fats.
The report read;
“On a month-on-month basis, the Headline index increased by 1.48 percent in September 2020. This is 0.14 percent rate higher than the rate recorded in August 2020 (1.34) percent.
“The urban inflation rate increased by 14.31 percent (year-on-year) in September 2020 from 13.83 percent recorded in August 2020, while the rural inflation rate increased by 13.14 percent in September 2020
from 12.65 percent in August 2020.”