2022: Nigeria’s Economic Tale Of Milestones

The global economic growth has remained pressured as it recovered from the COVID-19 pandemic and sliding into the Russia- Ukraine war, putting a hold on the recovery that was projected for the year 2022. Inflation soared globally as supply chain disruptions persisted with food and fuel prices soared. 

Nigeria was not left out of the global rising prices as inflation in the country reached a 17-year high at 21.47 per cent as at November, 2022. The country’s inflation was fueled by not just the lingering impact of the COVID-19 pandemic, the Russia-Ukraine war, but also by rising insecurity, exchange rate pressures, climate change and the devastating impact of severe flooding on farmlands this year.  

Inflation, which measures the rate at which prices of goods and services rise, spiraled from 15.6 per cent in January to 21.47 per cent as at November. To curb this, the Monetary Policy Committee(MPC) of the Central Bank of Nigeria(CBN), like its counterparts across the world, had adopted a hawkish stance. 

Benchmark interest rates had been raised four times this year, a record for the committee which had not moved rates since 2020. At its last meeting in November, the committee had raised benchmark rates to 16.5 per cent following a 150 basis points hike in September.  

This was in line with the statement of the CBN governor, Godwin Emefiele, who had mentioned that there will be further tightening as long as inflation continued to rise. Meanwhile, analysts maintain that the inflation is being fueled by the incessant funding of the federal government by the CBN through ways and means. 

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The federal government, short of funds to finance its budget, had been exploring ways and means from the CBN. Similarly, Nigeria’s public debt had risen during the year to N44. 06 trillion in the third quarter of 2022 from N39.55 trillion which it was as at the end of 2021 as it continues with repayment burden.  

Already, the country is at risk of borrowing to pay interests on its debt obligations as the minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed had sounded the alarm bells. With its current N44.06triillion total debt stock as of September 2022, Nigeria has spent N3.04trillion to service external and domestic debts in nine months of 2022, representing an increase of 23.4 per cent Year-on-Year (YoY) from N2.46 trillion reported in nine months of 2021. 

Nigeria, however, continued to record growth, albeit at a slow rate as the annual growth of the Gross Domestic Product (GDP) was at 2.5 per cent in the third quarter of the year, slower than 4.03 per cent and 3.98 per cent recorded in the third and fourth quarter of 2021 respectively. Growth had slowed to 3.11, 3.54 and 2.25 per cents in the first second and third quarter of 2022. 

In the financial sector, the banking industry remained resilient despite the hawkish policies and harsh economic conditions. The Capital Adequacy Ratio (CAR) of the banking system declined in October 2022 to 13.4 but remained within its prudential limit of 10.0 -15.0 per cent. At 40.1 per cent, the Liquidity Ratio (LR) was above its prudential limit of 30.0 per cent. The Non-Performing Loans (NPLs) ratio also improved to 4.8 per cent in October 2022. 

There was however turmoil in the market after the CBN governor announced the redesigning the higher denominations of the naira in an effort to curb inflation in the economy and reduce the amount of physical cash that is being spent. 

The announcement spurred a frenzy in the market as speculators took to the foreign exchange market, sending the value of the naira down to a record low of N900 to the dollar. As the date of the release of the new notes drew near, the value of the naira stabilised around N740 to the dollar on the streets, maintaining the wide gap between the official rate which is still around N452 to the dollar. 

With the newly redesigned N200, N500 and N1,000 notes out on December 15, and the old notes expected to be out of circulation by January 31, 2023, the CBN had introduced the full implementation of the cashless policy. The policy, which is to take effect from January 9, 2023, has continued to raise discourse amongst the populace. With the policy, individuals and corporates alike are restricted to cash withdrawals of N500,000 and N5 million respectively. 

With illiquidity in the foreign exchange market, CBN had taken measures to increase dollar inflow into the country through non-oil exports, thus reducing the country’s foreign exchange dependence on oil remittances. In March this year, it had introduced the RT200 FX which is the race to earning $200 billion dollars between two to three years.