As the global economy is predicted to decelerate by up to 4.3 per cent in 2022, Nigeria and other countries facing debt sustainability challenges may face reduced access to external funding, forcing abrupt fiscal adjustment, the World Bank has warned.
With a budget deficit of over N6 trillion and mounting pressures on debt sustainability, Nigeria may be facing limited access to external funding as the World Bank predicts that the country’s economy will see a growth of 2.5 per cent in 2022 and 2.8 per cent in 2023 driven by growth rising commodity prices.
This is as it forecast a 3.6 per cent growth for the Sub Saharan African (SSA) region this year compared to 3.5 per cent expected for full year 2021.
Nigeria’s debt profile has continued to rise with domestic debt standing at N18.23 trillion while external obligations stood at $37.95 billion as at September 30, 2021. This is compared to $33.24 billion external debt and N16.02 trillion which it was at December 31, 2020.
Debt servicing has also been on the rise and this year, the federal government plans to spend N3.6 trillion of the N16 trillion budget on servicing its obligations, a trend analysts have said is fast becoming unsustainable.
According to the World Bank, countries facing debt sustainability challenges may face reduced access to external funding, forcing abrupt fiscal adjustment.
Meanwhile, the World Bank, in its 2022 Global Economic Outlook, predicts that global growth is expected to slow through this year into 2023 as the spread of the COVID-19 variants alongside inflation, debt and rising inequality intensifies uncertainty which could endanger the recovery in emerging and developing economies.
According to the World Bank report, global growth is expected to decelerate markedly from 5.5 per cent in 2021 to 4.1 per cent in 2022 and 3.2 percent in 2023 as pent-up demand dissipates and as fiscal and monetary support is unwound across the world.
Growth in the three largest SSA economies, Angola, Nigeria, and South Africa was estimated at 3.1 percent in 2021, an upward revision from previous estimates.
In Angola and Nigeria, growth was driven by the recovery in non-oil sectors; oil production across the region remained below pre-pandemic levels because of disruptions in maintenance work and declining investment in extractive industries. In South Africa, a strong rebound earlier in the year was disrupted by severe COVID-19 outbreaks, social unrest, and power shortages.
World Bank Group President David Malpass commenting on the report noted that the world economy is simultaneously facing COVID-19, inflation, and policy uncertainty, with government spending and monetary policies in uncharted territory. “Rising inequality and security challenges are particularly harmful for developing countries. Putting more countries on a favorable growth path requires concerted international action and a comprehensive set of national policy responses,” he pointed out.
Meanwhile, growth in SSA is projected to firm slightly during the forecast horizon, to 3.6 percent in 2022 and 3.8 per cent in 2023. This outlook is nearly a full percentage point below the 2000-19 average, however, reflecting the continued effects of the pandemic, reduced policy support, and policy uncertainty and worsening security situation in some countries.
Elevated commodity prices are expected to support near-term recovery across the region, with higher oil prices and the gradual easing of OPEC+ production cuts benefiting Nigeria and Angola.
Growth in Nigeria is expected to reach 2.5 percent in 2022 and 2.8 percent in 2023, while Angola’s economy is projected to grow by 3 percent on average in 2022-23. Growth in South Africa is forecast to moderate to its pre-pandemic trend, being held back by structural impediments and elevated levels of public debt.
“The pandemic has set back progress on poverty reduction and key development goals across the region, reversing more than a decade of gains in per capita income in some countries. In over a third of the region’s economies, including Angola, Nigeria, and South Africa, per capita incomes are projected to remain lower in 2022 than a decade ago.
“Risks to the outlook are tilted to the downside. Poverty, food insecurity, rising food prices, and geopolitical tensions could dampen consumer sentiment and hinder growth. A substantial moderation of the global economic growth could trigger a significant downward correction in commodity prices to the detriment of the region’s oil and metals producers.
“Very low COVID-19 vaccination rates in the region pose a threat of renewed and more severe outbreaks, which could trigger recurrent disruption to activity. A prolonged pandemic could amplify past development and health challenges, derail structural and fiscal reforms, and result in lasting human capital losses.