Zainab Ahmed, the minister of finance, budget and national planning, on Thursday, July 1, in a Virtual Public Consultative Forum, presented the Draft FGN 2022-2024 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTFF and FSP).
In the presentation, the minister stressed that non-oil sector performances had so far supported the current state of the Nigerian economy. In contrast, the oil sector has been relatively less impressive in output performance and revenue accruals.
Significant pointers to the relative dysfunctional realisations from the oil economy accrue to high production costs, including PMS under-recovery and cost of securing pipelines, fluctuations in the global prices of crude oil beyond predictable bounds, and instability of the exchange rate. These combined have continued to weigh down on the revenue-generating capacity of the sector, leading to underperformance.
Read Also: How insecurity cost Nigeria’s economy $10.3bn in 2020
Indeed, the much-feared coronavirus pandemic disrupted the global business status-quo, and worldwide supply chains were grossly affected. During the period, crude oil prices declined to as low as $20pb in April 2020. This unfavourable outcome necessitated the review of the national budget in June 2020, when the National Assembly approved the revised 2020 budget with an oil price benchmark of $28pb, down from the initial $33pb.
Even at that rate, Nigeria’s revised oil price was termed uncompetitive as international average production cost during that period rallied around $6pb. At that price, marketing and profitability of the country’s major export products were difficult, and revenue loss was inevitable. Ultimately, fiscal pressure worsened.
With increasing COVID-19 strings and continued pressure on the health, services and oil production sectors, Nigeria soon lapsed into a recession by the third quarter of 2020 after two successive rounds of negative GDP growth. Only in Q4 2020 did a positive 0.11 percent GDP growth suffice.
By Q1 2021, Nigeria’s bruised economy began to regain some semblance of balance. GDP growth reached 0.51 percent year-on-year, signalling a gradual post-COVID-19 recovery. Zainab Ahmed revealed that this recovery was driven by non-oil activities in the economy, particularly the telecommunications and agriculture sectors.
The Draft FGN 2022-2024 MTFF/FSP document presented by the minister reveals that the telecommunication sector accounted for 76.9 percent of GDP growth while the agricultural sector accounted for 2.28 percent, year-on-year, respectively.
However, the trade and road transport subsectors were not praised for their performance levels, whose implications on the cost of doing business in the country are too visible to ignore.
In her presentation, Zainab Ahmed revealed that the trades sector recorded -2.43 percent performance (YoY). In comparison, road transport recorded a -23.75 percent performance (YoY). High inflation rate (18.17%) was also sustained for some time and only managed a feeble decline in May 2021 to 17.93 percent.
Furthermore, the high unemployment rate experienced in the country has ensured that more individuals are dragged into the widening poverty net as the day comes by. With 33.3 percent of Nigerians unemployed, poverty headcount, according to National Bureau of Statistics (NBS) data at 82.9 million people representing 40.1 percent of the Nigerian population, seems unquestionable.
Compared vis-à-vis global capital markets, the Nigerian financial atmosphere remains exposed to risk aversion. Foreign investors remain sceptical about the certainty of Nigeria’s business space and the sustainability of their naira-backed investments in the country. Also, sustained impressions about an over-valued naira continue to dominate portfolio investor’s sentiment against capital investments in the country.
With the scarcity of foreign investments coming into the country, pressure on foreign exchange will continue to mount. The Central Bank of Nigeria may become depressed about frequent interventions in defence of the naira. CBN’s latest intervention was the adjustment of the official exchange rate to align with the Nigerian Autonomous Foreign Exchange (NAFEX) rate, currently at N410/US$1. This move may not yield a market-driven FX market’s desired result if availability and unfettered access to foreign exchange at the new official rate in the various financial institutions are not guaranteed.
Suffice to say that to achieve a truly unified exchange rate as advised by the IMF on various occasions, market-occasioned price competition is needed to determine true prices at the FX windows. Also, the backdoor economy needs to be rid of its current price leadership to dismantle the round-tripping and arbitraging system that the dark economy currently supports.
In all, the prospects for the country’s growth remain primarily opaque, as fiscal risks to the economy still pose a disturbance and revenue growth is not within an anticipated projection. Also, monetary policy’s capacity to sustain a weak currency may ebb out due to continued pressure from a vulnerable shock-battered FX market.
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