Macroeconomic Review Q1 2020: Steering a Fragile Economy in the Face of Uncertainties


Friday, March 27, 2020 /04:26 PM / by FSDH Research / Header Image Credit: FSDH Research


The global pandemic: COVID-19

The Coronavirus which originated in China has spread to over 191 countries and territories.

  • Many economies have witnessed reduced economic activities in the first quarter of the year:
  • Industrial facilities were shut in China and in other affected countries.
  • Restriction of movement of goods and people.
  • Global supply chain disruption.
  • Demand for crude oil has declined and led to sharp drop in oil prices to below $30 per barrel
  • These factors will have negative implication on
  • global growth.
  • IMF estimates that global growth will fall below 2.9% recorded in 2019.


Impact on the Nigeria Economy 

The combined effect of the oil price crash and the coronavirus pandemic has hit the already fragile Nigerian economy hard. Prior to the global pandemic Nigeria economy exhibited two trends : (i )a weak external position with declining external reserves from $45 billion to $ 38 billion in January 2020; worsening trade deficit and declining foreign investment inflows and (ii) and improving internal economic indicators with as shown by improved GDP growth, stable exchange rate and higher lending to the private sector. The coronavirus pandemic has changed this and the economy is now more likely to head into a recession.


Economic growth in Q1 2020 is expected to fall by 0.6% to less than 2%. FSDH revised estimates show an average growth of 1.4% for 2020. The lower GDP growth will stem from:

  • Fall in government spending
  • Depreciating Naira
  • High Inflation
  • Sectoral impacts due to shut downs, movement restrictions etc.


Inflation: One major factor that will drive up inflation rate in March is panic buying as a result of uncertainties on the Coronavirus situation. Inflation rate rose for the sixth consecutive month to 12.2% in February 2020. This is the highest rate recorded since April 2018. 


Exchange rate: Following the outbreak of the COVID-19, forex inflow in the I&E Window fell drastically in the month of February and the CBN had to intervene. With pressure on the Reserves, the CBN in March 'adjusted' the exchange rate to NGN360/US$ from NGN306/US$. The CBN also harmonized the forex market windows as the new rates range from NGN360/US$ to NGN380/US$. In bid to ensure stability in the forex market, the CBN in it last MPC meeting unanimously voted to retain all parameters.


Foreign investments: Foreign investments have also shown a declining trend. Major factors responsible for the decline in foreign investment inflows include uncertainty on the economy, inconsistent policies, declining external reserves, insecurity and harsh operating environment for FDI. As stated in our Outlook released in January, these factors will continue to limit the inflow of foreign investment in 2020. Investment inflows in 2020 is expected to be lower than  US$24billion recorded in 2019.


Budget revenue targets will be largely unmet, debts will continue to rise

Despite the early passage of the 2020 budget, fall in crude oil price arising from the Coronavirus outbreak has resulted in a fall in crude oil revenues in the first quarter of 2020.

  • As at March 20, crude oil traded at US$27 per barrel, US$30 below the US$57 pb 2020 budget benchmark. Out of the 58 days in the year so far, crude oil has traded below the benchmark price for 29 days (50%).
  • With oil price expected to remain low going into Q2 coupled with staggering oil production volumes due to lower demand and supply glut, funding the budget will remain a key challenge.
  • Possible shut down of economic activities across states in the country and limited movement of persons will also limit the inflow of non-oil revenue in the year.
  • We expect the government to review the budget estimates and resort to further borrowing to cover existing shortfall.
  • Public debts, which stood at N26.2 trillion as at September 2019 is expected to increase to about N29 trillion in 2020.


Market performance remains mixed and will continue to be volatile 

There is active speculation and bargain hunting in the equity market . For fixed income , Investors ask for higher OMO rates.

  • The outbreak of COVID-19 has severely altered the outlook of the Nigerian equity market, reversing the gains recorded in the wake of the year. It's impact has sent the NSE ASI to a record low level. As at March 20, ASI dipped by -17.3% to 22,198.43 from 31,430.50 at the first trading day of 2020.
  • The Nigerian equity market continued to shed foreign and local participation as total transactions dropped by 37% to settle at NGN148.5 billion in February 2020.
  • Domestic investors displayed apathy as foreign participation expanded to 49.04% up from 29.86% in January while domestic participation stood at 51.96% down from 70.14% in January.
  • Despite the decline in participation in the market generally, investment inflow was recently largely dominated by domestic investors. On the other hand, outflow was dominated by foreign investors given the weak global confidence across equities markets due to the Coronavirus pandemic. If the spread of the coronvairus is not curtailed as soon as possible, market confidence will continue to drown and the market will experience further decline.
  • The fixed income space was affected by Coronavirus outbreak as investment sentiment and confidence are being hampered. As such, the bears dominated the fixed income segment. There was an uptick in yields from the bond market- average yield pointed at 11.83% as at March 20 from 11.14% recorded at the beginning of the year. Average yields are likely to average just below 10%.
  • In the OMO market space ,average  OMO rate has spiked to 16.49% from 13.18% at the beginning of the year. Recently, the CBN auctioned OMO for subscription, however, the subscription rate was abysmally low and asking rate ranged from as high as 16% to 17% across maturities. Persistence and inability of the global economy to tame the menace of the coronavirus will continue to affect investor confidence in the market and on the economy.


Coronavirus stimulus package by Nigeria and other countries 


In Nigeria the central bank has taken the lead with a N3.5 trillion stimulus: Fiscal measures are weak

  • Extension of moratorium by an additional one year on CBN intervention funds.
  • Interest rate reduction from 9% to 5% on CBN intervention facilities.
  • Creation of a N50 billion fund for households, MSMEs industries such as aviation, health, hotels, etc.
  • Restructuring of loan tenors for businesses in affected industries particularly oil and gas, agriculture and manufacturing.
  • N1trillion in loans to boost local manufacturing and production across critical sectors while N500 billion will be used to support Health services and products
  • There could be further increase of LDR policy from 65% to stimulate lending to the real sector.
  • Naira 'adjusted' to N380/US$.
  • Activation of the N1.5 trillion infraco project for building critical infrastructure.


Fiscal measures

  • Reduction in pump price of petrol from N145 per liter to N125 per liter.
  • Decline in oil price led to a significant reduction in landing costs which fell below the government regulated price of N145 per liter.
  • This in effect cancels out the petrol subsidies
  • Increase in price of crude and higher landing costs could result in higher subsidy payments or an increase in pump price.


Key Fiscal measures that Federal Government should consider include the following :

  • Target specific non-oil products and industries for exporters to take advantage of the devalued exchange rate.
  • Provide intervention funds and support for essential industries/commodities such as rice, vegetables and related products to enhance outputs and efficiency.
  • Intensify reforms on ease of doing business across states.
  • Develop economic stimulus packages for essential industries/commodities in their respective states.
  • Disbursement of intervention funds to vulnerable households that are affected by the Virus, at both federal and states level.
  • State government bail-outs are inevitable.




The CBE instructed domestic banks to raise daily transaction limits on credit cards, besides cancelling fees and commissions applied at points of sale and on withdrawals from ATMs for six months.

Egypt's Central Bank slashed its main interest rates by 300 basis points, lowest level since early 2016, to 9.25% from 12.25%.

Instituted EGP100 billion (US$6.35 billion) stimulus package with EGP50 billion (US$3.17 billion) for the tourism sector and EGP27.6 billion (US$1.75 billion) for vulnerable families.

Instituted EGP 20 billion (US$1.3 billion) support package for stock exchange; Egypt's stock exchange shortened trading hours


The South African Reserve Bank (SARB) cut the main lending rate by 100 basis points to support the flagging economy.

The Johannesburg Stock Exchange (JSE) is considering shortening trading hours and enforcing stricter enforcement of rules prohibiting uncovered short-selling to ease the growing liquidity crunch.

The South African Reserve Bank (SARB) commenced buying an unspecified amount of government bonds in the secondary market as part of additional emergency policy measures aimed at easing severe liquidity crunch triggered by the Corona Virus.

Over R500 million (US$28.59 million) made available to SMEs in distress.

Over R3 billion (US$171.5 million) industrial funding to address vulnerable firms and to fast-track financing for companies.

Set up Solidarity Fund to combat the spread of coronavirus, track the spread and support affected. Government provided seed funding of R250 million (US$14.3 million).



Expectation from CBN MPC in 2020: March MPC holds parameters constant


On March 23 and 24, the CBN Monetary Policy Committee (MPC) held its second meeting of 2020. At the meeting, the Committee took the following decision:

  • Retain the Monetary Policy Rate (MPR) at 13.5 per cent;
  • Retain the asymmetric corridor of +200/-500 basis points around the MPR;
  • Retain the CRR at 27.5 per cent; and
  • Retain the Liquidity Ratio at 30 per cent.


This was based on the following considerations:

  • Prevailing adverse global economy occasioned by the outbreak of Coronavirus as well as slow
  • growth outlook for the domestic economy.
  • Rising inflation rate which stood at 12.2% in February 2020
  • Rising liquidity due to OMO policy changes
  • Persistent decline in foreign exchange reserves
  • Fall in crude oil price
  • Increasing credit to the private sector
  • Careful assessment of the recent CBN's policies and stimulus package aimed at supporting the real
  • The CBN is expected to continue in its effort to curtail inflation and ensure exchange rate stability.
  • Further, the CBN will intensify its heterodox policies outside the MPC; continuing to adopt tools such as LDR, OMO, FX restrictions and interventions to stimulate lending to the real sector and propel economic growth.


Scenarios and revised macroeconomic projections






GDP Growth






Average Inflation Rate






Average Exchange Rate (N/US$)






Average External Reserves (US$ Billion)






Monetary Policy Rate






Private Investment as a % of GDP







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