The year 2022 was supposed to be the year of full recovery from the impact of the Covid-19 pandemic and its attendant woes, however, the Russia-Ukraine war put a damper on any growth forecast as food inflation surged globally.
With inflation having surged to record highs in many countries across the globe in 2022, the trend is expected to begin to slide down in 2023. For
For Nigeria, while the rising inflation is expected to temper and begin a downward trend, the major challenge for economic managers will be financing the country’s 2023 budget and more so due to already very high public debt stock. With total public debt at N44.06 trillion as at the end of the third quarter of 2022, analysts expect that the debt burden will continue to soar.
The chief executive officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said he expects Nigeria’s debt profile to hit N70 trillion this year.
Dr Yusuf, a former director general of Lagos Chamber of Commerce and Industry (LCCI), explained that, “in all probability, the deficit will be much bigger by year end because of the track record of revenue under performance over the last couple of years.
“We are also likely to see an acceleration of Central Bank of Nigeria (CBN) financing of fiscal deficit given the revenue performance trajectory. The public debt stock is growing and currently at N42 trillion.
He noted that a number of issues need to be addressed to achieve the nation’s fiscal sustainability aspiration, saying, government owned enterprises managing huge economic assets need to justify the value of assets at their disposal; and oil revenue performance should be much better given the prevailing global oil price.
He pointed out that the foreign exchange policy regime is adversely impacting on business environment and needs to be urgently addressed, saying, weak private sector performance would naturally affect non-oil tax revenues.
He also said there is a need for budget reforms, adding that, the budgetary appropriations must reflect urgent national economic priorities.
According to World Bank Lead Economist for Nigeria, Alex Sienaert, Nigeria’s debt servicing is expected to gulp 123.4 per cent of the federal government’s revenue in 2023.
“Debt servicing has surged over the past decade and is expected to continue increasing over the medium-term, crowding out productive spending” he stated noting that the size of public debt in Nigeria will continue to be of concern due to the rising debt service-to-revenue ratio with the situation expected to be dire in 2023.
Inflation in Nigeria rose to a 17-year high at over 21 per cent with global inflation expected to peak at 9.5 per cent in 2022 before dropping to 4.1 per cent by 2024. However as central banks across the world have adopted a tightening stance, hiking benchmark interest rates across board, it is expected that global growth will slow down in 2023.
According to International Monetary Fund (IMF)’s economic counsellor, Pierre-Olivier Gourinchas, in a blog post accompanying the fund’s October World Economic Outlook, more than a third of the global economy is headed for contraction between 2022 and 2023.
“This year’s shocks will re-open economic wounds that were only partially healed post-pandemic. The worst is yet to come and, for many people 2023 will feel like a recession,” Gourinchas said.
In its report, the IMF trimmed its 2023 global GDP forecast to 2.7 per cent, 0.2 points down from July expectations as Gourinchas warned that misjudging the persistence of inflation could prove detrimental to future macroeconomic stability ‘by gravely undermining the hard-won credibility of central banks.’
At the start of the year, the global economy was projected to extend the strong post-pandemic recovery of 6.1 per cent in 2021 with a baseline growth rate of 3.6 per cent in 2022.
However, this bullish outlook was dented by the multifaceted negative spillovers from the ongoing war in Ukraine and aggressive monetary policy tightening by global systemic central banks targeted at curbing the runaway inflation.
On the back of these developments, the IMF in its October 2022 World Economic Outlook (WEO) report downgraded its global growth projection for 2022 to 3.2 per cent its third downgrade since the war in Ukraine began in February.
Back home in Nigeria, the combined effect of the year-long structural challenges, policy mismatch, and negative externalities have begun to taper the recovery momentum recorded in 2021. In the third quarter of 2022, Nigeria’s GDP growth slowed to 2.3 per cent from 3.1 per cent and 3.5 per cent in first and second quarter of 2022, respectively.
Asides global developments, Nigeria’s economy had slowed as public debt piled up amidst exchange rates crisis. According to analysts at Afrinvest West Africa, Nigeria’s economic managers failed to optimise its human capital potential and favorable oil prices. We expect the factors to drag because of the political transition and the time it would take policy reforms (if any) by the incoming administration to manifest gains. Hence, we estimate a 3.3 per cent. GDP growth for 2022 and project a 3.0 per cent growth for 2023.
Meanwhile, the governor of the Central Bank of Nigeria(CBN) projected that inflation in the country is expected to decline in the new year.
The apex bank governor, Godwin Emefiele had stated that with the various monetary policy tools in use by the CBN, he foresees inflation figures declining steadily to below 15 per cent by the end of 2023.
Noting that the 2023 elections would trigger a slight increase in inflation, but afterwards, there would be a continuous deceleration of inflation, he said: “inflation expectations are rising as existing structural rigidities are compounded by global factors and anticipated election-related liquidity upsurge. For the rest of 2022 and towards mid-2023, Nigeria’s rate of inflation is projected to remain elevated and above the 12.5 per cent growth-aiding threshold.
“However, on the backdrop of our previous policy measures, and as the effect continues to permeate the system, our inhouse model-based simulations indicate that inflation rate could fall steadily to less than 15 percent by end-2023.” On the direction of monetary policy in 2023, he noted that over the coming years Monetary policy would remain focused on the objectives of price, monetary, and exchange rate stability.
“Our policy stance will, accordingly, remain tight to curtail inflation pressure, regulate capital flows, and buoy the naira-dollar exchange rate. Monetary policy decisions will remain balanced, judicious, research-driven, adequate and supportive of the real economy subject to underlying fundamentals. We will maintain the current tight Monetary Policy stance in the near-term, especially in view of rising inflation expectations and exchange market pressures. Though, we will act to appropriately adjust the policy rate in line with unfolding conditions and outlooks,” he stated.
For the banking industry, it is expected that banks will invest more in technology, having being significantly impacted by brain drain in 2022. This is also as the cashless policy of the CBN taking effect from January 9, 2023 is expected to see more electronic transaction in 2023.
Analysts at Cordros Research, note that they believe Nigerian banks will maintain their growth trajectory supported by core income, owing to higher loans and investment securities yields.
“Although, we think banks will be cautious about growing loans domestically in 2023FY as the tight monetary conditions will likely limit risk asset creation. On the external front, Moody’s downgraded nine Nigerian bank’s long-term ratings based on the weakening in the Nigerian government’s fiscal capacity to support the country’s banks, and interlinkages between the sovereign’s weakened creditworthiness and the banks’ balance sheets, given the banks’ significant holdings of sovereign debt securities.
“We expect non-core income to support earnings in 2023FY, albeit marginal, as the price sharing and glitch on the e-banking platforms will continue to impact the performance. In addition, we believe this will negatively impact Nigerian banks looking to raise debt externally,” it pointed out.”
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