John Danjuma Omachonu
As the nation awaits the newly rebased consumer price index (CPI) and gross domestic product (GDP) report by the National Bureau of Statistics (NBS) today, economic analysys and other stakeholders are asking whether the likely enhanced economic figures would translate into improving the lives and livelihoods of the citizens.
This is because the action is expected to significantly increase the country’s economic size, potentially surpassing $500 billion from the current estimate of around $200 billion.
This development, according to them, may have far-reaching implications for Nigeria’s economic and political landscape as the exaggurated figures are capable of giving the country false impression that could deny her of possible international assistance
Besides, political and economic expectations would be high without necessary corresponding growth and output as politicians and government would use the pseudo growth that could heighten political campaigns over governance
This, according to them could lead to increase in trust deficit as growth, Inflation may show encouraging figures amid rising poverty.
Bismarck Rewane, chief executive officer, Financial Derivatives Company, in the FDC, Bulletin, Economic Whispers, “GDP Rebasing – feeling tall because of high-heeled shoes,” of January 28 said,
“The Nigerian GDP was last rebased in 2014. At that time, the GDP increased by 89%, rising to $510 billion from $270 billion. While it provided a meaningful basis for comparison with peer countries, it had a negative impact on Nigeria’s ability to negotiate for debt relief. This was because Nigeria was now classified as a middle-income country. The current size of the GDP in US dollars is approximately $214 billion. After the rebasing, we expect the GDP to reach as high as $520 billion. It sounds good and looks impressive, but it changes nothing.
“The tough path to monetary policy normalization
“Nigerians are likely to wake up to an announcement that inflation has fallen from 34.8% to 27%, as a result of the CPI basket reconstitution. It is natural for the CPI basket to be reconstituted every five years, but this has not happened since 2009. While the basket reconstitution is necessary, it may obfuscate the real issues, particularly the underlying structural drivers of inflation. Inflation in Nigeria is driven by output reductions and increases in money supply, which remain potent factors. Meanwhile, the expected decline in inflation could usher in an era of accommodative monetary policy. The EIU projects that interest rate cuts will begin in mid-2025 as the disinflation cycle gains traction, with the policy rate expected to settle at 23% by year-end.”
Rewane further said that recent appreciation in the local currency lacks the required fundamentals for sustainability.
“In the last few days, we have seen a notable appreciation of the naira, recording gains of 1.82% in the parallel market and 1.73% in the NAFEM. This improvement has been primarily driven by increased dollar liquidity, speculative trading, and short-term market interventions. However, this appreciation is unlikely to last long because the fundamental drivers of the currency (i.e., export earnings, agricultural production capacity and FDI) have not changed dramatically in the last few days. Therefore, one can conclude that the recent gains in the naira is more based on technical factors rather than an improvement in the underlying economic fundamentals.”
Friday Ameh, Lagos based analyst, in response to MBN inquiry said, The outcomes from the increased GDP are many and vary from circumstances to situations, “With an increased GDP, Nigeria might no longer qualify for debt relief programs, potentially affecting its economic stability. Also, the country’s potential transition to a middle-class economy could raise expectations for improved governance and economic performance, amid conflicting and in some cases contradicting statements and actions. The rebased GDP figures might create high expectations among citizens, which could be challenging for politicians and the government to meet, creating the need to balance economic expectations with reality in Nigeria. A Double-Edged Sword for Economic Development and Debt Management, I would also say.”
While acknowledging that the figures could enhance the country’s status both local and international spheres, the analysts were unanimous in their submissions that
the postponement by the Central Bank of Nigeria (CBN) to February of the Monetary Policy Committee (MPC) meeting was basically to buy time for the new inflation methodology to kick off in January, arguing that the GDP rebasing will yield an exaggerated GDP growth number, and the CPI rebasing will downplay the inflation rate for the bank to come out with cheering figures and possibly commence accomodative monetary policy stance moving forward.
According to the NBS, rebasing is a process of updating an old base year with a recent one to reflect changes in the prices of goods and services produced within the economy.
In the new methodology, the proposed base year for inflation computation is 2024. The year was proposed to capture the structural changes driven by the removal of subsidies on FX and PMS.
However, some analysts have questioned the choice of 2024 when major decisions were taken by the government, adding that it can flatter incoming data and help accelerate the reported decline in price pressures.
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Accprding ro the analysts, CBN may be close to activating a rate cut and see legroom for a cumulative downward rate adjustment of between 100 —200 basis points in the second half of 2025, hence it’s trying to leverage on the spur of the moment.
“What it means is that CBN, in trying to walk to an answer, has an uphill task of meeting federal government’s proposed 15% inflation in the 2025 budget as well as reducing food inflation, currently at about 40% to less than 30 percent and prohibitive interest rate in the immediate future,” says an analyst.
The revamped CPI basket will feature 960 items, up from the current 740, and there will also be changes to the weight of categories that make up the index. Most notably food, which consumes the bulk of the household budget, has been reduced to 40.1% from 51.8%, while the housing, energy and electricity category will shrink to 8.4% from 16.7%.
Adjusting the weights comes with the “implication that the inflation figure is going to reduce,” said Professor Festus Adenikinju, president of the Nigerian Economics Society and a former member of CBN’s monetary policy committee.
“What has been driving inflation in Nigeria has been the food-price inflation, so if food now has a lower weight I won’t be surprised if the figure that will be announced by the NBS will be close to what the budget has,” said Adenikinju.
The soaring cost of living has been fueled by economic reforms introduced by the federal government, ocassioned by the rollback of costly fuel subsidies and relaxing currency rules to let the naira trade more freely against the dollar, which led to its value plunging by about 70%.
However, the analysts say the new weight does not necessarily mean expenditure on food has reduced, but was a reflection of households’ expenditures as captured in the NBS survey adding that the choice of 2024 would mean a statistical decline in inflation numbers, while in reality, the effect of high prices on the cost and quality of living will persist.
Will Nigerians feel the projected inflation drop in their pockets and will the rebased economic figures enhance their living conditions?
The Monetary Policy Committee meeting, which is held bi-monthly has been moved to February 17th and 18th, almost three months after the last meeting in November.