Rebasing to Drive Nigeria’s $1trn GDP, Lower Inflation Targets – Analysts
Nigeria’s plan to rebase the nation’s gross domestic products (GDP) and consumer price index (CPI) that measure headline inflation is expected to make key macroeconomic indicators look good in 2025, analysts said in a note.
The programme, which analysts think is overdue to reflect most recent economic data, was last conducted in 2014. The exercise at the time lifted Nigeria’s gross domestic product by about 89% to $510 billion.
However, the economic size has reduced sharply due to exchange rate weakness, and an an unstable price level has nudged inflation to red territory, which is currently damaging to private sector performance. Giving plan to include other economic activities from various segments that have emerged, Nigeria’s GDP may be close to $1 trillion after the exercise is completed, from about $400 billion.
For the gross domestic product rebasing plan, the National Bureau of Statistics planned to change the base year for real GDP computation to 2019 from 2010. This is expected to jerk up nominal economic balance sheet size.
The authority also plans to extend coverage of more areas such as the digital economy, pension fund administrators, the National Health Insurance Scheme, the Nigerian Social Insurance Trust Fund, modular refineries, domestic households as employers of labour, and illegal & hidden activities.
For inflation, the Bureau aims at changing the price reference period to 2024 from 2009.and adjust the weighting of items in the CPI Basket using the 2023 reference period. Nigeria also plans to increase the number of items in the CPI basket to 960 from 740 the statistics office is currently using.
There will be inclusion of other key indexes such as services, energy, farm produce, and goods amidst the plan to digitise data collection processes. It also seeks the conduct of a national census of retail outlets with the inclusion of online retail outlets and plans to use a short-term relative index instead of a long-term relative index.
The NBS expects to launch the results of the rebasing at the end of January 2025 after validation. “We expect the GDP rebasing exercise to result in a higher nominal GDP as newer economic activities, industries, and services are incorporated. Consequently, we expect a significant decline in the key economic ratios, including debt-to-GDP ratio, tax-to-GDP ratio, fiscal deficit-to-GDP ratio, etc.”, Cordros Capital Limited said in a commentary note.
Analysts said the adjustment of the price reference period for inflation to 2024 provides a more accurate reflection of current spending patterns shaped by structural economic changes and market reforms.
However, the investment firm believes the revised CPI weights for inflation estimation could present a downside risk to its 2025 base-case inflation projection. This risk primarily arises from the reduction in the weight of food and non-alcoholic beverages, where prices have risen at a faster pace, despite the proposed increase in the weight of core items.
These adjustments, including potential declines in key economic ratios and headline inflation, are expected to have a significant impact on fiscal and monetary policy direction in 2025, analysts said. “In our view, the rebasing exercise is overdue given the last exercise for GDP and CPI was completed in 2014 and 2009, respectively.
“Given the transition in the economy induced by demography, global trends, and policy, for example, the increasing prominence of digitalisation, young median population age, and growing diaspora links, an economy such as Nigeria may need to revise GDP and CPI bases more frequently than it has taken,” Afrinvest Limited said in a note.
Analysts laud the efforts at expanding surveys and studies to inform the revisions, as well as efforts that may reduce informalisation of the economy. Also, emphasis on the Digital Economy and Mining sector should unlock growth levers, provided there is sufficient policy support to drive investment interest in the sectors. Overall, the new structure would be useful for designing more effective monetary and fiscal policies, which could enhance the effectiveness of economic planning.
Afrinvest recalls that the 2014 rebasing exercise boosted the Nigerian economy to about $510.0 billion from about $270 billion. However, foreign exchange quagmire and productivity challenges have since shrunk the economy to $363 billion based on N646.42 per US dollar average official exchange rate in 2023, according to Afrinvest.
“While the expansive revision to GDP might enhance overall nominal GDP size—a positive for the President Bola Tinubu-envisioned trillion-dollar economy—policymakers must look beyond statistical effects to drive sustainable growth,” analysts said.
Similarly, a potential decline in debt-to-GDP must not derail efforts to enhance fiscal discipline and sustainable debt growth, Afrinvest Limited added. #Rebasing to Drive Nigeria’s $1trn GDP, Lower Inflation Targets – Analysts BEDC Builds New 33kv Feeder Line to Improve Power Supply in Edo
