Various issues will shape the Nigerian economy in the New Year. But five of these stand out.
Fuel price increase
At the presentation of the World Bank Nigeria Development Update, November 2021 edition titled “Time for Business Unusual”, Mele Kyari, Group Managing Director of the Nigerian National Petroleum Company (NNPC), said by the end of February 2022, a litre of Premium Motor Spirit (PMS) would sell for N340.
Kyari, who premised his postulation on the determination of the current administration to end fuel subsidy regime by the end of February, said the Petroleum Industry Act 2021 had no provision for fuel subsidy. Thus, by the end of February when the law comes into full implementation, fuel price would be determined by market forces.
But the proposed fuel price hike has attracted the ire of labour movement, students and a number of other groups.
In its new year message released on Saturday, the Nigeria Labour Congress (NLC) threatened to shut down the country should the government go ahead with the implementation of fuel price hike, which it said would foist a regime of hardship on Nigerians.
The message, signed by Comrade Ayuba Wabba, NLC President, states further, “At our organ meetings which took place between December 15 and 17, 2021, the Nigeria Labour Congress took a decision to protest the planned hike in the pump price of petrol by government. The protest has been scheduled to take place in all the 36 states of the federation on the 27th of January 2022. The protest in the state would culminate in the submission of protest letters to the 36 State Governors. Subsequently, on the 1st of February 2022, there would be a national protest to be held in the Federal Capital Territory. We urge Nigerian workers and people to dust their sneakers and fully participate in the peaceful protests and rallies aimed at salvaging our economic future.”
New taxes
Finance, Budget and National Planning Minister, Zainab Ahmed, at the public hearing on the 2021 Finance Bill organised by the House of Representatives’ Committee on Finance in Abuja recently, said the Federal Government was contemplating the introduction of new taxes and tariffs to shore up its revenue.
According to the minister, the government would be considering “Current fiscal policy stance to let tax incentives with sunset provisions to naturally expire and not to automatically renew such incentives without a detailed tax expenditure cost /benefit evaluation of the relative success of the incentives before extending incentives further;
“Acceleration of projected increase tariff and excise duties (so-called ‘sin classes’) on tobacco, alcohol and carbonated drinks to fund vital expenditure on health, education and security;
“Wholesale reform of antiquated stamp duties and capital gains tax regime;
“Possibility of introduction of new taxes, tariffs and levies, as the economy recovers.”
The import of these is that businesses are going to pay more to the government. This may impair their ability to create more employment opportunities, the result of which may worsen the country’s current unemployment rate.
Exchange rates
In 2022, foreign exchange management will be one of the major issues that will shape the economy. In 2021, this issue nearly brought a wedge between the Central Bank of Nigeria (CBN) and Vice President Yemi Osinbajo, who, while speaking at the Mid-Term Ministerial Performance Review Retreat in October, called for a review of the CBN’s foreign exchange management strategy on the basis that the naira value “is artificially low and impedes the inflow of investments.”
Professor Osinbajo had then said that “As for the exchange rate, I think we need to move our rates to be as reflective of the market as possible. This, in my own respective view, is the only way to improve supply.”
In other words, the Vice President was calling for the floating of the currency. But the CBN’s adopted managed FX floating system, which enables it to play a guiding role in determining the value of the naira, rather than subjecting it strictly to the whims and caprices of market forces, is at variance with the VP’s suggestion.
However, despite the deployment of the nation’s foreign reserve in the defence of the naira, the local currency has been facing serious depreciation. As recently as last Friday, December 31, 2021, naira traded at N435/dollar at the official market. This was after the CBN adjusted the exchange rate on its website to N413.49 to a dollar. That would be the second time in seven months that the apex bank would change the official exchange rate of the naira, having adjusted it in May from N379 to N411.00 per dollar after adopting the Investors and Exporters (I&E) window rate, also known as Nafex rate. At the parallel market, the exchange rate ranged between N560/$ and N570/$ at the weekend.
There is, however, the possibility of the currency gaining some strength in the new year as the prices of crude oil may go up. Last Thursday, crude oil prices went up slightly despite soaring Omicron coronavirus infections against the backdrop of an understanding that OPEC and its allies would only increase imports incrementally.
On November 29, 2021, JP Morgan had projected the prices of crude oil to rise to $125 per barrel in 2022 and $150 a barrel in 2023.
If the price of crude oil goes above the $100/barrel mark, it would reduce the pressure on the naira and it may bounce back against the dollar. But experts say that reprieve will only be temporary as the permanent solution would be to scale up production in the country. Not only would this position the country to earn more foreign exchange, it would also reduce the country’s dependence on imported items.
Inflation
Headline inflation was 16.47 per cent in January 2021, rose to 17.33 per cent in February and hit 18.17 per cent in March. But April to November witnessed a steady decline in inflation rate as it cascaded to 15.4 per cent in November. However, food inflation was higher than headline inflation for most part of the year.
Economic experts have observed that the impending increase in the pump price of PMS, which will push up transportation cost, will escalate both headline inflation and food inflation. These, they opined, would scale up hardship in the country as more people are likely going to be pushed into poverty as a result of the hyper-inflation.
In its outlook Economic Review for 2021 and An Agenda for 2022, released on December 31, 2021, Centre for the Promotion of Private Enterprise (CPPE) noted that “inflationary pressure remains a major cause for worry both for businesses and the households as it remains elevated.”
It, therefore, called on the Federal Government to boost productivity in the economy to drive output growth, stem the depreciation of the naira exchange rate, address the illiquidity in the foreign exchange market and minimise the monetisation of fiscal deficit as measures to reduce inflationary pressure. It also suggested that CBN financing of deficit should be strictly limited to statutory threshold spelt out in the CBN Act, while government should seek creative ways of addressing insecurity in order to pave way for farmers to return to their farms.
Rising debts
According to the Debt Management Office, Nigeria’s public debt was N38trn as of the end of the third quarter of 2021, with the total debt stock rising by N2.540trn in three months from July to September 2021. However, given the fact that the government plans to borrow about N4.89trn from internal and external sources to finance the deficit in its proposed 2022 budget, the nation’s debt will be above N43trn by the end of this year, provided that the government does not borrow more money during the year.
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