As Nigeria is once again set to run a budget deficit in the coming year, finance experts have charged the federal government to embark on tax aggression to increase internal revenue with a view to reducing its foreign and domestic borrowing in 2022.
The year is likely to come with increased pressure on the country’s currency, the Naira, which could hit a new low and the planned subsidy removal on petroleum motor spirit will see the product double in price to N340 per litre.
On New Year eve, the Naira again lost ground at the official importer and exporter window, closing at N435 to the dollar.
This is as the International Monetary Fund (IMF) and the World Bank has predicted 5.9 per cent and 5.6 per cent GDP growth for Nigeria in 2022.
While the Naira presently trades at around N570 to the dollar at the parallel market, PMS sells at an average cost of 162 per litre. The group managing director of the NNPC, Mele Kyari, had in November 2021 projected a price range of N320 TO N340 per litre of PMS.
The experts who spoke in separate interviews with LEADERSHIP Weekend yesterday also called for the creation of an Enabling Fund to cushion the effect of petrol subsidy removal and Increased electricity tariff in the new year.
This is even as labour unions called on the government to ensure most of its fiscal and monetary policies are tilted towards jobs creation.
An economist and Chief Executive Officer of Financial Derivatives Company, Bismarck Rewane, predicted tough times for Nigeria’s economy in 2022.
He explained that the Omicron COVID-19 would scuttle all the growth projections forecasted by global financial institutions about Nigeria’s Gross Domestic Product (GDP).
In his 2021 Review and 2022 Outlook for Nigeria’s economy, Rewane said that the emergence of Omicron was a major threat to Nigeria’s economic growth projections in 2022, adding that the 5.9 per cent GDP growth projection by the International Monetary Fund (IMF)’ and the World Bank’s 5.6 per cent, European Union (EU)’s 5.4 per cent and OECD’s 5.7 per cent respectively for next year would be affected by the economic downturn.
Rewane added that Nigeria could experience another record slump in fiscal revenue due to lower oil receipts, a decline in remittances as well as subdued economic activities in addition to high inflation by the country’s trade partners and slow growth in 2022.
He also noted that the travel restrictions in Nigeria’s aviation sector would worsen inflation and the global supply chain, even as he said that the monetary tightening would become inevitable.
According to him, the emergence of the Omicron COVID-19 pandemic will cause persistent global supply disruptions as countries reintroduce travel bans, metamorphosing into a high risk of persistent rise in global inflation.
He predicted that the Central Bank of Nigeria (CBN) would join other central banks across the world to tighten monetary policy, noting that this would raise debt service costs in the economy.
He said, “COVID-19 will remain a threat to economies globally with the risk of more variants. The emergence of Omicron is a major threat to growth projections. Global supply disruptions should persist as countries reintroduce travel bans.”
Rewane also added that de-globalisation would heighten inflation risks as more use of AI & robots in the work environment, structural and strategic shift to electric vehicles in support of zero-carbon emission goals would manifest in the year.
He added that the growth of e-commerce and the digital economy would be intensified, saying the 2022 FIFA World Cup in Qatar would be at risk if more efforts were not put in place to checkmate the alarming spread of the Omicron COVID-19 pandemic.
While most experts expect a brighter outlook in the new year as the effects of federal government COVID-19 interventions begin to make tangible impacts, others said monetary and foreign exchange policy rigidities may also pose a risk to the growth outlook as there are no indications of any significant shift in monetary and foreign exchange policy stance in the near term.
On his part, renowned economist, Dr Tayo Bello, called on Nigerians to prepare for hard times as federal government embark on removal of petrol subsidy as well as increased electricity tariff.
Speaking in an exclusive interview with our correspondent yesterday, Bello who consented to the subsidy removal and electricity tariffs increase as long as these policies will translate to better services said there is no way any economy can grow with such huge petrol subsidy, noting that in Africa and the rest of the world, Nigeria’s petrol pump price is one of the cheapest.
Advising Nigerians to take the sacrifice as a price they have to pay for economic growth and progress, he said no economy grows without such sacrifice from its citizenry.
Attributing subsidy payment to one of the reasons Nigeria continue to borrow to meet its obligation, he said if government could recoup about N1trillion annually from non-payment of subsidy, such amount could be deployed to provide infrastructure, such as good roads and rail for transportation, stable electricity, among other amenities that would limit hardship Nigerians are going through.
“Nigeria cannot continue to borrow; it must generate its revenue locally and total removal of subsidy is one of the ways of doing that. Subsidy has to go, but the federal government must embark on massive awareness to enlighten Nigerians on why subsidy must not continue. This is what the government is not doing now and I believe if the government can increase awareness in this regard and people see the sincerity of the government on this, they will understand and be ready to pay the price of this decision,” he pointed out.
He said Nigeria has the cheapest fuel in the world, yet it is borrowing to build infrastructure, pay salaries and fulfill other obligations, while the government is carrying an additional burden of subsidy on its books.
Stressing that no economy develops that way, he said, “Definitely, this decision will affect everybody just like electricity tariff, but if you want a good thing, you have to spend to get it. It is only in Nigeria we want good services, yet we don’t want to pay for it. To cope with these changes, Nigerians must endure. Consumption patterns have to go down; you must be prudent in spending, and avoid extravagance”.
On inflation, he said, “Real income may shrink but inflation doesn’t create itself. Inflation arises when you have too much money in circulation, but when the disposable income is already low, inflation will be minimal.”
Calling on the government to create an enabling fund to cushion the effect of these policies on the people in 2022, he suggested that “the government can declare totally free education, provide all-inclusive free healthcare services to the people who use government health facilities”.
To limit the nation’s borrowing, he called for tax aggression to ensure that more taxable Nigerians pay tax, saying tax enforcement in the country is very low.
He urged the government to make judicious use of all these revenues when they come in to create the needed enabling environment for the masses and grow the economy, stressing that if this is done, it would be easier for the government to convince the people on its policies implementation.
On the volatility in the forex market, he said the situation arose because Nigeria is a consuming economy, as it hardly produces much for export.
Since there is no balance of trade between import and export, he said the value of the nation’s currency would continue to be volatile.
The situation, he added, is aggravated by multiple exchange rate systems the country operates, just as he called on the monetary authority, the CBN, to address the multiple exchange system.
Similarly, the CEO of Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, stated that the outlook for the Nigerian economy in 2022 is largely positive.
He, however, said the Gross Domestic Product (GDP) growth would remain fragile and projected at three per cent threshold, even as he noted that the key expected drivers of growth will be sustained recovery of global oil price, impact of the pandemic on the global and domestic economies, performance of service sector and activation of the Petroleum Industry Act (PIA).
He added that the activation of the PIA in 2022 is expected to impact positively on the economic outlook, saying, “We expect to see positive outcomes as investor sentiments in the oil and gas sector improves on account of the reforms anchored on the PIA.
“This will however depend on the political will deployed to drive the implementation of the provisions of the Act. It is also expected that the coming on stream of the Dangote refinery in 2022 will also impact positively on the downstream sector of the economy.”
On the 2022 budget, Yusuf said this provided for the sum of N3.88 trillion as debt service, a substantial amount compared with the capital budget provision of N5.46 trillion.
“Debt service payment is typically a first line charge in budget releases. The ambitious budget size of N17.1 trillion and the unpredictable revenue outlook elevates the risk of higher fiscal deficit than projected. This has implications for macroeconomic outcomes of high fiscal deficits, a new round of monetisation of the deficit, pressures on the exchange rate and the general price level.
“Monetary and foreign exchange policy rigidities may also pose a risk to the growth outlook as there are no indications of any significant shift in monetary and foreign exchange policy stance in the near term.
“Consequently, the distortions inherent in the foreign exchange market will persist in 2022. The constraining effect of the high Cash Reserve Requirement (CRR) on financial intermediation would also persist in 2022 with a dampening effect on growth outlook,” he pointed out.
The CPPE CEO noted further that despite the downside risks, the economy will continue to present huge opportunities for investors across all sectors.
He said, “This is on account of the resourcefulness of the Nigerian people, especially the entrepreneurs. Other inherent strengths of the Nigerian economy include the market size, the population and the demographic characteristics.
“The economy will continue to draw its resilience from the activities and creativity of the SMEs and the informal sector of the economy. The reality is that the policy, structural and regulatory weaknesses will persist in 2022. But investors have a responsibility to construct their business and corporate strategies to manage the inherent risks.”
On economic outlook for 2022, Cordros Securities Limited, in its report entitled, “2022 Outlook: Traversing the Murky Recovery, Domestic Macroeconomic Review & Outlook,” said, “Without downplaying the threats posed by the Omicron variant, we do not envisage widespread institution of lockdown measures.
“Nonetheless, we think the economy will be traversing a murky recovery path as pandemic-related disruptions continue to ease and activities normalise in contact-facing sectors.
“We expect growth to be supported by the non-oil sector, specifically the Telecoms, Finance & Insurance, Trade and Entertainment sub-sectors. In the oil sector, we expect terminal shut-ins due to decaying infrastructure and pipeline disruptions to limit crude oil production, although growth will be higher than in 2021.”
According to Cordros Securities, the monetary policy committee of the apex bank will come under increased pressure to switch its policy stance as major global central banks commence normalisation of unorthodox monetary policies enacted in response to the pandemic.
On its part, the organised labour, Nigeria Labour Congress (NLC), called on the federal government to ensure most of its policies are directed towards job creation, even as it lamented the loss of value of the Naira.
NLC president, Comrade Ayuba Wabba, decried the loss of purchasing power of average Nigerian workers, calling on government to come out with tangible job-creating policy to tame perceived increase in insecurity in 2022.
The NLC helmsman said, “The current high inflation is bad for businesses and the country’s development. It’s sad that Nigeria’s currency has lost its value.
“For instance, since 2015 till date, our currency has lost its value more than 150 per cent when you compare it with our neighbouring countries such as Ghana, Togo and Benin Republic. In 2015, 1 million CFA was equivalent to N250,000 but today, one million CFA is equivalent to N1 million.”
Wabba lamented that as a country with over 200 million populations, Nigeria is expected to produce 80 per cent of its consumption, but the reverse is the case.
“The 33 per cent unemployment figure was an understatement because we all know that we have an issue in this country when you talk about statistic and data. So, it’s above that figure. We need to understand that we have two categories of unemployment – uneducated and educated youths,” he pointed out.
Similarly, the president of Nigeria Employers Consultative Association (NECA), Taiwo Adeniyi, called on the government to address the issue of insecurity, rising cost of food and transportation, low investment pattern, challenge in sourcing of foreign exchange and rising inflation.
He assured that there would be improvement in performance of all sectors/sub-sectors if these are addressed.
He lamented that the nation’s inflation rate hit a four-year peak in March 2021, as food prices jumped more than 20 per cent, heaping financial pressure on households already faced with a shrinking labour market and a challenged economy.
“The country’s external reserves fell to a 13-month low in June 2021, tumbling quickly to $33.8 billion, the level it was between 2015 and 2017,” he stressed.
In a related development, the Nigeria Labour Congress (NLC) has lamented the rising costs of goods and services that witnessed steady upward movement in the outgoing year.
Wabba warned the federal government against going ahead with its planned removal of subsidy on Premium Motor Spirit (PMS), popularly called ‘petrol,’ in 2022.
To this end, the group criticised federal government’s policy on fuel importation, reiterating its readiness to shut down economic activities in the country should the APC-led government insist on increasing the price of PMS without due consideration.
Insisting on bringing back the four refineries to 100-built-capacity, the NLC leader wondered why the federal government should be talking of importation of refined petroleum products at the detriment of local refineries which can generate uncountable jobs for Nigerians.
“NLC has remained very consistent in its position about the issue of what we call subsidy. The position of NLC is that Nigeria has no reason to continue to import refined products for domestic use particularly PMS because we’ve also found out that we are the only member country of OPEC that is doing that.
“It’s an imposed policy on Nigeria, and our leaders must find a way and means to actually get us out of that imposition. We have made this point very clear that because of the devalued value of our currency, it then means that the policy of importation will continue to have a negative impact on consumers.
“We have seen that with kerosene, we have seen that also with diesel which our government has claimed that they’ve been fully deregulated, but the price has never been at the reach of ordinary Nigerians. Kerosene has been taken out of the reach of Nigerians; it is now unaffordable product to people. Even with the cooking gas, people are now using firewood.
“So, the position of NLC remains very consistent that we’ll be against any policy of removing subsidies in the name of deregulation if it is based on importation. By continue importation, Nigeria is creating jobs and wealth for other countries as our refineries remain under lock and key. It’s a patriotic position that many Nigerians have supported,” the labour leader said.