As the Nigerian economy recovers from the impact of the COVID-19 pandemic, it is projected to grow by 3.49 percent in 2022 despite base effect, according to Bismarck Rewane, an economist/CEO of Financial Derivative Company.
“Real GDP growth will be sublime, this will also be the first time in probably seven years that the GDP growth rate will surpass the country’s population growth rate,” Rewane said at the Nigerian-British Chamber of Commerce (NBCC) 2022 Economic Outlook on Thursday.
In her address, Bisi Adeyemi, president and Council chairman, NBCC, said a major objective for hosting the 2022 Economic Outlook was imperative to undertake a comprehensive assessment of the opportunities, challenges, and indeed the threats that businesses should expect to contend with this year.
Although the numbers are different, the projected growth resonates with the World Bank and the International Monetary Fund (IMF), both of whom predicted that the Nigerian economy will grow by 2.8 percent and 2.7 percent, respectively.
The projected growth would be propelled by the Information and Communications Technology (ICT) and the financial services sectors, which would provide a platform to aid the diversification of the economy in the face of fallen oil prices, devaluation of the naira, and other prevalent economic realities.
The IMF advised emerging countries to prepare for a hike in the interest rates as this could rattle financial markets and tighten financial conditions globally.
Affirming this, Rewane said CBN’s monetary policy direction will be influenced by global developments, hence there will be likely monetary policy tightening in an advanced economy, which could trigger capital flow reversals, resulting in currency weakness in Nigeria and increased debt service burden.
Read also: CBN, World Bank give GDP growth projection for 2022
“As we look into 2022, we can see that there will be a debt problem as the government increases borrowing to meet deficit financing needs, this will however stifle lending to the private sector,” he said.
The government plans to raise N10.74 trillion in 2022, yet they have constantly borrowed to attain the yearly revenue targets in recent years.
This has continued to push up the cost of debt servicing, which has tripled since 2015 to N35 trillion as of June 2021, according to data from the Debt Management Office (DMO).
Zainab Ahmed, minister of finance, budget and national planning, said during the public presentation of the 2022 FGN Approved Budget that the overall budget deficit was N6.39 trillion for 2022, which represents 3.46 percent of GDP.
“Budget deficit is to be financed mainly by borrowings from domestic sources, foreign sources, multi-lateral/bi-lateral loan drawdowns, and privatisation proceeds,” she said.
According to Rewane, inflation will remain structurally high with a full-year average of 13.3 percent driven by cost-push factors such as fuel subsidy removal, electricity tariffs, and taxes. Nigeria’s inflation rate took a turn in April 2021 and continuously decelerated for eight months and is currently at 15.4 percent.
Speaking on the impact of global trends on Nigeria, he explained that lingering global supply shortage would weigh on the supply of imported raw materials and supply disruptions coupled with the exchange rate pass-through effect will stoke inflation.
As the political landscape in the country gathers momentum going into the elections, he also foresees “political jitters would heighten forex demand pressures in Q4.” He however advised that the CBN’s intervention be more aggressive in order to keep the naira stable, which could see the external reserves drop to $39 billion.
Highlighting possible scenarios for exchange rate performance, he said optimistically if oil price goes up to $120-125 per barrel, oil production increases to 1.8mbpd, and the terms of trade improves the exchange rate should rally to N490/$ in the parallel market and N430/$ in the official market.
Pessimistically, if oil price decreases to $60-65 per barrel and oil production decreases to 1.3mbpd and terms of trade worsens, the exchange rate is likely to drop to N590/$ in the parallel market.
“Gross External Reserves are projected to decline from $40 billion to $39 billion in 2022, as the CBN increases forex supply and foreign portfolio investors exit due to political uncertainties and rising global interest rates,” he said.
Nevertheless, it is expected that the CBN steps up efforts towards exchange rate convergence from previous devaluations undertaken in 2021. This will bring the official and parallel market rates closer if successfully executed.
The increased adoption of technology in 2022 will improve Nigeria’s data availability and integrity, this will increase information circulation, enhance communication and system efficiency in the private and public sector, he said.
“The economy will see a 90 percent surge in e-payment as well as an increased adoption of technology and digitisation, furthermore new frontiers will open up, particularly in the fintech space,” he said.
Also, the increased adoption of technology will offer more convenient ways of doing things, which will boost hybrid work mode and productivity in the workplace, he said. As an adverse effect, this will reduce the need for manpower, which will lead to an increase in job loss and consequently an increase in crime rate.
This is worsened with 2022 as a pre-election year; Rewane noted that the country’s security risks will be on the rise, especially high levels of violent crime, direct attacks on multinational oil firms, inter-communal violence, and terrorism, all of which will be exacerbated by election-related violence.
“There are concerns particularly around the political permutations but if the government does all that it has proposed to do according to the budget there is reason to be optimistic. In addition, an increase in Foreign Direct Investment (FDI) will be necessary to drive the economy as we begin to recover,” Adeyemi said.
