THE UNITY BANK DIGEST – JULY 04, 2022 (Re: Energy Crisis worsens as Inflation Spikes)

Dear Subscriber,

Consumers are now in an even more perilous situation as a result of the resurgence of fuel scarcity, which has contributed to the soaring cost of living. In Lagos, Abuja, Nasarawa, and other states, black marketers have profited from the paucity of fuel by selling PMS for as much as N300 per liter, while some filling stations have resorted to hoarding the supplies. Businesses are left to battle with rising cost of operations as the price of diesel seem to never stop the upswing coupled with the lingering forex shortages, among other structural rigidities.

To worsen it all, the Economic Intelligence Unit (EIU) has ranked Lagos, the second- worst city to live in among 172 cities worldwide. The state, which has at least 14 million inhabitants remains the most populous city in Nigeria. Rapid population growth combined with a severe lack of housing, healthcare, and transportation infrastructure could make living conditions worse and make it difficult for businesses to operate.  This could put the state and even the entire country at risk of divestment.

On the bright side, FAAC allocation showed an improvement due to the current elevated oil prices. The improvement in revenue allocation is nevertheless constrained by the country’s subpar oil production level. This is in addition to the rising NNPC deductions for subsidy payments. The NNPC plans to deduct a sum of N126bn from the June FAAC allocation. A decline in the FAAC allocation would compound the state governments’ financial woes, resulting in salary cuts and staff layoffs, which will likely affect aggregate demand and consumption levels as income remains squeezed. Consequently, turnover and profits of manufacturing concerns will be impaired.

Meanwhile, Nigeria’s debt service to revenue ratio is over 80%, indicating a rising debt service payment amid the government dwindling revenue. Debt service payment rose by 109% to N896bn in the first quarter of 2022 compared to N429bn in the last quarter of 2021. High debt level (currently at N41.60trn), in the era of global interest rate hike makes it more expensive to service debt, potentially keeping the country on a fiscal cliff.

This edition of the Unity Bank Digest, as usual, provides you with intriguing recent economic news and interesting social stories.

Please enjoy your read!