BY EMEKA EJERE
Economic analysts are raising several issues to question the feasibility of the 4.2 percent gross domestic product (GDP) growth in 2022 projected by the federal government.
The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, had at the Public Consultation on the Draft 2022 to 2024 Medium Term Fiscal Framework and Fiscal Strategy Paper (MTFF/FSP) last week added that Nigeria’s 2021 growth was adjusted downwards from 3% to 2.5%, while forecasting 2022 to be a better economic year.
This comes barely one month after the World Bank said Nigeria’s economy is expected to expand at a moderate rate of 1.8 percent this year while edging up to 2.1 percent in 2022.
It stated this in its June 2021 Global Economic Prospects, entitled, ‘Global Recovery Strong but Uneven as Many Developing Countries Struggle with the Pandemic’s Lasting Effects’.
The Bretton Wood institution had in Jan¬uary projected a 1.1 percent growth rate for the country in 2021 after the COVID-19-induced sharp re¬cession in 2020, which saw the country’s GDP contracting by 1.92%.
According to the Bank, the new projection for Nigeria is on the as¬sumption that oil prices will continue to rise, a gradual implementation of structural reforms in the oil sector, and a market-based flexible exchange rate management.
Earlier in April, the International Monetary Fund (IMF) had in the reviewed 2021 World Economic Outlook raised Nigeria’s 2021 growth projection to 2.5 per cent, a figure 1.5 percent point higher than January’s estimate and much higher than the 0.8 per cent forecast in October 2020.
From the report, Nigeria’s GDP is expected to grow by 2.3 per cent in 2022 as against the earlier projected -0.2 per cent.
However, many experts doubt the feasibility of the projections, citing the country’s dwindling revenue and mounting national debt, depleting foreign reserve, insecurity, decreasing foreign direct investment (FDI), spiraling inflation, high unemployment among other factors hindering growth with no end in sight.
Recent data from the Debt Management Office (DMO), showed that the federal government spent a sum of N1.02 trillion on domestic and foreign debt service in the first quarter of 2021, representing a 35.7 per cent year-on-year increase compared to N753.7 billion spent in the corresponding period of 2020.
According to the DMO, N612.71 billion was spent on domestic debt service, while N410.1 billion was expended on servicing of external debt.
Nigeria’s total debt portfolio rose to N33.1 trillion as of March 2021 from N32.9 trillion recorded as of the end of 2020, representing an increase of 0.58 per cent. The debt expense for the period already represents 30.7 per cent of the total N3.32 trillion budgeted for debt service for the entire year.
The country spent the equivalent of 83 per cent of its revenue in 2020. The total revenue earned by the government during the year stood at N3.93 trillion, while the amount spent on debt service stood at N3.26 trillion.
In the same vein, Nigeria also recorded a 99 per cent debt service to revenue ratio in the first quarter of 2020, having recorded retained revenue of N950.56 billion and incurred a sum of N943.12 billion in debt service.
There are also concerns that the naira is facing an intense pressure that has left it struggling both at the official and unofficial windows of the foreign exchange market, amid continued depletion of the nation’s foreign reserves,
Nigeria’s external reserves fell by $100 million in three days, from June 26 to June 28, as the figures continued to witness historic depletion. At the moment, the nation’s foreign reserve is among the poorest in the comity of oil-producing and leading African economies, including South Africa, Egypt and Morocco.
Data from the Central Bank of Nigeria (CBN), showed that the gross reserves have fallen to approximately $33.4 billion on June 28 against the $33.5 billion balance as of June 25, 2021.
The liquid form also fell from an excess of $33.3 billion to $33.2 billion within the three days, leaving the country with a shortfall of over $100 billion. The external reserve fell to a fourteen-month low as of Monday (June 28).
The figures have been on a reducing balance since last May 28 after appreciating briefly between May 26 and 28 before pulling back.
Experts had warned that Nigeria faced a tough challenge financing its huge import as the foreign reserve holdings continue to tumble. The falling reserves, they said, could leave the country’s battled economic outlook worse off since the confidence of foreign investors is partly influenced by the size of the reserve.
According to 2020 United Nations Conference on Trade and Development (UNCTAD)’s World Investment Report, the Nigerian economy attracted a total FDI of $2.6 billion last year down from the $3.3 billion attracted the previous year.
The report also noted that FDI flows to Nigeria totaled $3.3 billion in 2019, a 48.5 per cent decrease compared to $ 6.4 billion in 2018. This has left the economy with very serious implications.
Unemployment in the country jumped from 27.1 per cent in Q2 2020 to 33.3 percent as of the end of 2020, the highest in the modern Nigerian economy, according to the recently released labour force report published by the NBS.
Inflation rate, however, fell for the second consecutive month in May to 17.93 per cent from 18.12 per cent recorded a month earlier. But there was no respite in terms of increase in food prices as food inflation rose in May to 22.28 per cent, compared with 22.72 per cent in April 2021.
Projection overambitious –Analysts
Reacting to the projection, a former president of Chattered Institute of Bankers of Nigeria (CIBN), Mazi Okechukwu Unaegbu, noted that the federal government is being unnecessarily over optimistic, stressing that it can never achieve the projected GDP growth from what is happening today.
Unaegbu, who spoke with BusinessHallmark in an interview, said: “I still believe we’re still in a recession. People say we are out of recession. Look at the level of inflation; interest rate in the economy, exchange rate in the economy today is over N500 to the dollar out there, though Central Bank says N410 or whatever.
“Tell me how you’re going to achieve the 4.2 percent growth. Your debt service ratio, debt service alone is more than what you produce. So how can you achieve 4.2 percent GDP growth in 2022? 3022 is here already; we’re in 2021. It’s not going to be possible.
“The only way they can go is to come back, restrategise; look at the various indices of growth in an economy. Unemployment is very high; the tax rate is high and I keep advocating that for us to grow, they should reduce the tax rate. And I’ll tell you why.
“If you reduce the tax rate, you are going to follow what is called volume transaction. In other words, I’m an employer, if you increase the tax rate, there will be no incentive for me to produce more. Because I will say after producing more the tax will drop it. I will do the barest minimum just to stay afloat.
“But if you reduce the tax rate, i will be encouraged to produce more and more, so that the volume transaction will result in my paying minimum tax and then employing more people. The more people you employ, the more tax government gets from those people’s remunerations. And that way things work. But when you put the tax rate so high, it’s not going to work.”
On his part, a public affairs analyst, Mr. Richard West, wondered how 4.2 percent growth could be possible for an economy that has never achieved 3 percent even in the best of days.
He said, “In six years, even in the best of days we have not gotten 3 percent growth. At the moment we can’t have half percent growth. Where is 4.2 percent coming from?
“Even mama put sellers are groaning over rising costs of paper and tomatoes. Homes are not cooking stew again. Graduates doing convocation in Unilag today are not smiling over their bleak future.”
An economist, Joseph Peters, simply wondered how Nigeria will record such level of growth “when it still imports almost everything, including petroleum products despite being the seventh largest producer of crude in the world.
He said while this has left Nigeria’s local currency at the mercy of the U.S dollar, the situation is worsened by those who sabotage the currency by way of speculation.
“No economy has ever grown without embracing productivity”, he cautioned.
But Ahmed in her further details had stated: “In 2022, we are expecting an uptake to 4.2 per cent, then a dip to 2.3 per cent in 2023 and up to 3.3 per cent in 2024,” she said.
“Inflation rate, which was planned for 11.95 per cent in 2021, has been reflected in reality because the exchange rate is high. The average we have so far is 15 per cent. We are expecting 2022 to go down slightly to 13 per cent, then 11 per cent in 2023 and 10 per cent in 2024.”
“The exchange rate of the naira to the dollar, which was N379 in the 2021 budget, has been adjusted to the NAFEX rate of N410.15 to one US dollar. We are assuming, for now, the same rate for 2022, 2023 and 2024.”.