The new year started on a slow but optimistic note, with economic momentum in 2021 spilling into 2022. Oil prices began an upward glide in January 2022 to tip over the US$90 per barrel mark as supply rigidities and rising demand dragged oil prices up.
However, like every other year, the first quarter came with its fair share of unforeseen contingencies. These highlights changed the trajectory expected by both monetary authorities as well as analysts’ predictions.
Here are the seven major highlights of the first quarter of 2022:
December’s inflation figures ended Nigeria’s 8 month inflation decline streak
Nigeria’s headline inflation accelerated in December marking the first time in 9 months it witnessed an uptick, settling at 15.63% for the period under review.
The National Bureau of Statistics (NBS), in a Consumer Price Index report released in January, attributed the marginal increase to higher demand during the Yelutide which pushed prices up.
Data from the report indicated that headline inflation is about 0.2% higher than the 15.40% in November 2021. Food inflation settled at 17.37% in December as against 17.21% the previous month. Core inflation during the period also slightly went up to 13.87% as against 13.85%.
The uptick further continued in February as inflation witnessed a further increase to 15.70 on the back of the ongoing fuel scarcity.
Suspension of Planned petrol subsidy removal for 18 months by FG
The year started off with a bang as the earlier announced removal of petrol subsidy by the Federal government changed tides. Nigeria’s government suspended its plans by 18 months.
While some parties accrued it to political stunts of some sort, others accrued it to the government’s fight against inflation.
Femi Adesina, the President’s special adviser on Media and Publicity during an interview on Channels Television’s Sunrise Daily programme stated that the intention of the Federal Government to extend the removal of fuel subsidy by 18 months was to aid in the fight against high double digit inflation.
“It is done because as the minister (of finance) stated, the timing is not auspicious, inflation is still high. In the past eight months, we saw inflation reducing but in December, it went up again; further consultations need to happen with all the stakeholders,” Adesina said.
While the planned removal of subsidy on PMS and price regularisation of electricity tariffs could help reduce actual deficits, there are concerns about the likelihood that resistance from the Union can stall the plan, with implications for debt service cost. While N3.8tr was set aside for debt servicing, the country’s debt to the revenue which stood at 89% as of December 2020 before the country’s debt profiled ballooned, could reach 395% in 2022 if revenue underperforms. This proposition is made more credible by the recent streak of operational shortfalls in the oil sector.
While Nigerians were still ingesting the whole event/story with their personally preferred narrative, the economy was suddenly hit with another unforeseen bombshell…DIRTY PETROL.
The Dirty Petrol Saga
The ugly case of the dirty petrol saga which first surfaced in Abuja, the Federal Capital Territory, and subsequently spread to major cities in the country significantly contributed to the current Inflationary pressures witnessed by many Nigerians today.
What began as a minor oversight transformed to a devastating economic blow that has navigated the economy away from its trajectory towards sustainable growth.
Available reports suggested that the particular batch of contaminated fuel was brought in January. But it was able to evade the regulatory oversight of the Nigerian National Petroleum Corporation (NNPC).
Despite alarms raised by Nigerians’ as to the damaging effect of this dirty petrol, other than trading blames, no punitive measures were taken to send clear signs to the parties involved that they have indeed crossed the red line of proprietary.
The NNPC however stated that it has intensified efforts at increasing the supply of Petrol into the market in order to bridge any unforeseen supply gap that may arise.
Despite these claims a new plague hit the economy as the crisis between Russia and Ukraine ushered in a new wave of petrol/diesel scarcity and increased inflationary pressures.
Russia-Ukraine crisis
Experts say the cause of the military conflict can be tied to a complicated history of Russia’s tensions with NATO and the ambitions of Vladimir Putin.
Predictions of a full-scale Russian invasion of Ukraine came true in the early morning hours of February 24
Russia had amassed up to 190,000 troops, (according to reports from the U.S.), on Ukraine’s borders over the course of many months. The buildup of forces around Russia’s neighbour and former Soviet Union state started in late 2021 and escalated earlier this year.
Prior to the invasion, Russian President Vladimir Putin recognized the Russian-backed breakaway regions of Donetsk and Luhansk, both located in the disputed Donbas area, as “independent” people’s republics and ordered so-called “peacekeeping” troops into those areas.
What started as a situation that was concerning but surrounded by hopes for dialogue and diplomacy has evolved into what the Ukrainian foreign minister described as the “most blatant act of aggression in Europe since ” World War II and is living up to its reputation as oil prices skyrocketed.
Read also: Nigeria’s struggling economy in 7 charts
Oil Prices soared to $139, highest in over 14 years
The Russian-Ukraine crisis dragged crude oil price to $139 per barrel which remains the highest since 2008.
Benchmark oil price- Brent crude rose above $139 a barrel in February, a week after attacks on Ukraine.
Russia launched a large- scale military operation in Ukraine on February 24 which saw crude oil price surge in the first day to $103.
Russia is a key player in Europe’s energy supply, accounting for 40 per cent of the continent’s natural gas, thus it is expected that oil dependent nations like Nigeria would naturally feel the pinch of their exit and we are already feeling it with the ongoing resilient fuel scarcity that’s eating deep into Nigerians Pockets today.
Ongoing diesel and petrol scarcity
Fuel and diesel scarcity have worsened across Nigeria despite repeated assurances from the government that the crisis would soon be over.
Queues have persisted in Abuja, Lagos and several other cities throughout last week and early Monday morning as people scrambled to get petrol for their cars and their electricity generators at a time of rising temperatures.
The crisis, which has lingered for weeks and in some places like Abuja, for several months continued despite the federal government saying it has sufficient stock of petroleum products for distribution across the country.
Households are really feeling the pinch as filling stations at Banex, Jabi, Wuse and Lugbe areas of Abuja sold petrol at prices ranging from N162 to N280, while diesel currently sells at N700 per litre.
Black market sellers along the roadsides sold 10 litres of petrol for between N4000 and N5000 in Lugbe, Jabi, and Banex.
Resilient long queues are still witnessed at Mobil filling stations, A.A.Rano, AFDIN along Airport Road and Major Oil Jabi. While some fuel stations like Shema, Dan Oil along airport road.
The resilient rise of public debt
Last week, the Debt Management Office (DMO) published its quarterly data series on Nigeria’s public debt. Based on the data, the FGN’s domestic debt stock totaled N19.2trn ($46.2bn), equivalent to 11.1% of 2021 GDP.
Patience Oniha, the director-general of the DMO stated that the increased public debt included new borrowings by both the Federal Government and state governments.
“The new borrowings were raised from diverse sources, which included issuance of Eurobonds, Sovereign Sukuk and Federal Government of Nigeria Bonds.
“Borrowing for this purpose, and disbursements by multilateral and bilateral creditors account for a significant portion of the increase in the debt stock,” Onahi said.
“For the Federal Government, it would be recalled that the 2021 Appropriation and Supplementary Acts included total new borrowings of N5.48 trillion to part-finance the deficits,” she added.
She, however, noted that the Federal Government had taken concrete steps to address revenue challenges which made servicing of the debts burdensome.
Given the projected borrowings of N5.1trn (ex-supplementary budget) this year, the debt-service-to-revenue ratio may well surpass 2021 levels.
The size of the FG’s borrowings this year, estimated at N5.1trn (excluding the supplementary budget), including the recent $1.25trn Eurobond issue, is likely to exert upward pressure on market yields in the second half of 2022 (H2 ’22).
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