Cash Crunch: Expert Predicts Drop in Q1 Nominal GDP

The Former CEO, National Bureau of Statistics (NBS) and Statistician-General of Nigeria, Dr Yemi Kale, has said that Nigeria’s nominal Gross Domestic Product (GDP) in first quarter (Q1) of 2023 will drop by as much as N10-15 trillion.Information Guide Nigeria

This is due to the naira policy and difficulty in sourcing for cash in the first three months of the year.

In a tweet he published on his verified Twitter handle @sgyemikale at 12.12 p.m on Tuesday, March 14, 2023.

He stated that 40 per cent of Nigeria’s N198 trillion GDP in 2022 was informal, of which about 90 per cent was cash-based.

Kale said, “Further 30% of formal sector GDP is cash-based. This means 106.9 trillion of total GDP is cash-based.”

The Naira redesign and cash withdrawal policies of the Central Bank of Nigeria (CBN) had created scarcity of the local currency leaving banks and businesses complaining of lack of access to cash. The ensuing confusion, following Supreme Court’s order to return old Naira notes (N200, N500 and N1000) into circulation and the apex bank’s failure to immediately comply, created long queues in cash-strapped banking halls and Auto Teller Machines (ATMS), THE WILL reports.NYSC Portal

Reacting to this and the expected impact on Q1 GDP, Kale said in his tweet: “Of the 46 economic activities, agriculture, some manufacturing activities (especially food & beverage, textiles, apparels), trade, arts, entertainment and recreation, accommodation & food services, road and water transport and other services are expected to be the most affected.”

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The former NBS CEO and Statistician-General of Nigeria, who is now Partner and Chief Economist & Head Research at KPMG Nigeria, however, noted: “But every policy will have pros & cons & will benefit some but not others. There is no policy that won’t affect someone negatively. Or that won’t have costs.

“The idea is to do a cost-benefit analysis looking at the overall impact of any policy & how and when it is to be implemented, across the economy & not just in one or a few areas and deciding if overall, the benefits outweigh costs. If yes, then the costs are acceptable. Then a policymaker can or should introduce palliatives to make the costs bearable to those that will be negatively affected by its implementation.

“If result of analysis is the implementation of the policy & its implementation will be more detrimental to the entire system than beneficial even if it benefits a particular area or sector then it clearly isn’t a good idea to go ahead,” Kale said in a series of tweets on Tuesday.

“The CPI is about 50% food of which several are perishable in the absence of storage. Assuming there is a decline in the inflation rate which I anticipate (though marginal) when @NBS Nigeria publishes their inflation report, we can then compare if the gains in inflation in Q1 2023 outweigh the expected decline in GDP & possibly other macro & socio-economic variables.

“Recall employment is also tied to GDP growth- a slowdown in growth will have a negative impact on employment. On the other hand, both a reduction in inflation & growth in GDP can improve poverty rates. So it will be interesting to see which dominates overall economic well-being”JAMB Result

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