•Again naira falters on parallel market, now $366/$

• NBS Allays Concern over Q1 2018 GDP Performance

Iyobosa Uwugiaren in Abuja and Obinna Chima in Lagos

The National Bureau of Statistics (NBS) has allayed concerns over the performance of the Nigerian economy in the first quarter of 2018, saying though GDP growth rate dropped to 1.95 per cent, compared to 2.11 per cent in the preceding quarter, it was a reflection of the slowdown in economic activities at the beginning of the year.

The NBS was responding to the misconception by some members of the public that the economy had contracted in Q1 2018.

This came as the naira continued its slide against the U.S. dollar on the parallel market, falling to N366 to the dollar, lower than N364 at which it sold on Tuesday.

According to the GDP report released on Monday by the NBS, the economy grew by 1.95 per cent in Q1 2018 in tangible terms but compared to GDP growth rate in the preceding quarter, it recorded a decline of -0.16 percentage points from 2.11 per cent.

However, year-on-year, the Q1 2018 growth rate was 2.87 percentage points higher than the negative growth of -0.91 per cent in Q1 2017.

Nevertheless, a memo prepared by the NBS Wednesday and made available to THISDAY said Q1 2018 GDP growth was expected to be lower than the preceding quarter, because of the slowdown in economic activities at the beginning of the year.

“It is correct to suggest that Q1 witnessed slower economic expansion (growth) than Q4. However, this is not the same as saying that the economy is shrinking or contracting, or not growing. It is growing, just not as fast,” NBS stated.

“Q1 2018 will be expected to be lower than Q4 2017 for three reasons: firstly, Q4 typically being the end of the year witnesses higher, faster levels of economic activities/expansion than Q1, when households would have smaller budgets due to heavy end of year expenses. Salaries are also often delayed in the first months of the year, as businesses slowly re-adjust to a new year.

“Government budget implementation also hardly starts at the beginning of the year, which results in sluggish economic activities. From trade exports/imports, severe winter seasons may also impact on international trade which affects GDP,” the statistical agency said.

The NBS further explained in the memo that there are seasonal variations from month to month, and quarter to quarter, saying it was therefore more appropriate to compare Q1 with Q1, Q2 with Q2 and so on, noting that “this takes care of the issue of seasonal variations in economic activities; Q1 2018 (1.95%) was higher than Q1 2017 (-0.91%) and Q1 2016 (-0.67%)”.

It stated further: “Since the GDP growth rate compares the economic activities to the preceding year, it should be recalled that Q1 2017 was slightly better than Q4 2016 at the height of the recession; since Q4 2016 was really negative, even a small positive increase will appear as significant, compared to the relatively better Q1 2017.

“As a result, Q1 2018 growth rate, which compares to Q1 2017 will reflect slightly lower than Q4 2017, which compares to Q4 2016 as we have seen. This is also known as the base effect. Quarterly GDP estimates are useful but not the only measures of economic activity.

“They need to be considered in context along with other indicators, for example, investment flows and overall business sentiment/expectations also signal the confidence of producers in the short term.”

NBS also said that quarterly GDP estimates may be revised, as both 2.11 and 1.95 are approximately 2%, while there may be no significant difference between those two quarters.

On the possibility of the economy relapsing again into a recession if anything goes wrong in the oil sector, NBS said there was no immediate cause for concern regarding anything going wrong in the oil sector.

It said that while it was correct to suggest that the recession was induced mainly by the drastic fall in crude oil prices, which started mid-2014, there were two other important factors that exacerbated the 2016 recession.

“The level of external reserves was not substantial enough to enable the CBN successfully manage the exchange rate depreciation, i.e. defend the naira, that was expected to happen once investors/started to panic and move their capital out as crude oil prices fell.

“Domestic oil production was curtailed due to increased militancy in the Niger Delta in late 2015/2016. This significantly constrained government revenue flows at a critical time,” it said.

Following the country’s exit from recession, NBS explained that the administration has been able to address two areas: CBN’s external reserves – currently at $48 billion, “are sufficiently robust enough to deploy in the event of an oil output or price drop, and domestic oil production has been sustained at near historical highs of 2mbpd for consecutive quarters, as peace and tranquility has been restored to the oil-producing areas”.

In addition, the NBS said government revenues are projected to be dominated by non-oil revenue compared to previous years, thus lowering the exposure to oil price/production fluctuations.

“Moreover, recent forecasts do not indicate any global expectations that crude oil prices will fall in the short term, especially in view of increased regional tensions in the Middle East and the Asia Pacific.

“Nevertheless, crude oil price fluctuations have always been a double-edged sword for Nigeria: rising oil prices benefit government revenues but raise the cost of imported refined petroleum products and may result in products scarcity, while falling oil prices lower the cost of importation but cause a fall in government revenues.

“Ultimately, policymakers need to continue to address the challenge of economic and revenue diversification, as well as improve domestic refining capacity in order to ensure that rising oil prices can benefit Nigeria’s revenues without negatively affecting domestic fuel supply,” NBS said.

On the concern that the Q1 figures reflected a disappointing trend as consumer confidence remains low, compared to the GDP figures in Q4, 2017, NBS said the recession officially ended less than a year ago, noting that it was difficult to draw this conclusion about consumer confidence solely by comparing Q4 and Q1.

The statistical agency observed that the Q1 figures seemed to reflect that output was growing, but slowly, following the recession.

According to the agency, “Typically, Q1 is the slowest quarter of the year as economic activities tend to pick up more slowly after the end of year/new year holidays.

“Consumer spending/household budgets (which is about 60-70%) of GDP are tighter at the beginning of the year (Jan-March), than at the end of the year (Oct-Dec) when festivities tend to drive up spending/ consumption.

“As the government budget spending kicks in as well as electioneering-related expenditure kicks in, an uptick in economic activities can be expected and this will translate to increased household incomes/spending.”

On the decline in non-oil sector output in Q1 2018 weighing heavily on GDP growth rate, NBS explained that in terms of contribution to GDP, it was true there was a small decline in the contribution of the non-oil sector to GDP (from 91.47% in Q1 2017 and 92.65% in Q4 2017 to 90.39% in Q1 2018) but this could just be a quarterly (seasonal) variation.

Naira Weakens to N366/$1

Meanwhile, the naira continued to falter against the U.S. dollar on the parallel market segment of the foreign exchange market Wednesday, as it fell to N366 to the dollar, lower than N364 at which it traded on Tuesday.

On the Investors and Exporters (I&E) Window, the naira also dropped marginally to N361.40 to a dollar, lower than N361.30 from the previous day.

The last time the naira was seen at its present value on the parallel market was on September l2, 2017.

President of the Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, attributed the development to renewed pressure on the forex market as well as galloping crude oil prices.

“A lot of factors are also contributing to the pressure we are seeing in the market. Firstly, once there is a spike in crude oil prices in the international market, there is always increased demand for dollars globally, which has a negative impact on the naira.

“The anxiety in the Nigerian stock market is also affecting the naira negatively. As you may have observed, market capitalisation has been depreciating in recent times and some of those that are exiting the stock market are demanding for dollars, which also puts pressure on the forex market,” Gwadabe explained.

He reiterated his call for the Central Bank of Nigeria (CBN) to take urgent steps to review the rate at which the dollar is sold to BDCs in order to reverse the trend.

However, analysts blamed the shortage of dollars in the forex market on offshore investors who have been dumping Nigerian bonds due to the fall in yields and multinationals repatriating their dividends.

The Monetary Policy Committee (MPC), for the 11th consecutive time on Tuesday, retained the Monetary Policy Rate (MPR) at 14 per cent, Cash Reserve Ratio (CRR) at 22.5 per cent, Liquidity Ratio (LR) at 30 per cent, and the asymmetric corridor at +200-500 basis points around the MPR.

The CBN Governor, Mr Godwin Emefiele, explained that the committee retained the policy rates in anticipation of high liquidity injection in the second half of 2018, the upward pressure of prices driven largely by substantial expansion of fiscal policy, which would arise from the late passage of the 2018 budget, outstanding balance from the 2017 budget and pre-election spending.

The CBN, nonetheless, sustained its interventions in the forex market Wednesday, pumping $210 million to meet customers’ requests in various segments of the market.

A breakdown of this showed that the Bank offered $100 million to authorised dealers in the wholesale segment of the market while the SMEs segment got $55 million.

According to the figures obtained from the central bank, customers needing forex for retail invisibles were also allocated $55 million.

CBN spokesman, Mr. Isaac Okorafor, reiterated the Bank’s commitment to continue to intervene in the interbank forex market, in line with its pledge to sustain liquidity in the market and maintain stability.

Okorafor said the CBN would sustain its strategic management of forex, with a view to reducing the country’s import bill and halting the depletion of foreign reserves.

The CBN also said it had observed that some banks were turning back customers that come to purchase BTA/PTA and forex for pilgrimage.

It asked bank customers to “go straight to their banks to buy forex as the CBN has supplied enough dollars to the banks to meet needs in the invisibles segment”.

“Customers are hereby enjoined to report any bank that refuses to attend to their legitimate demands within 24 hours,” Okorafor said in a statement.

It also released a designated telephone number – 07002255226 – for customers to call and report erring banks.