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By Merit Ibe
Nigeria’s accelerated electioneering and political activities could pose an added risk to nation’s economic recovery, with major reform initiatives practically stalled due to perceived political cost of some decisions.
These were the words of the Chief Executive Officer, Centre For the Promotion of Private Enterprises (CPPE), Dr Muda Yusuf, who noted that the heightened tempo of political activities which could be sustained for the next couple of months would typically increase distractions of the political leadership from governance and economic management.
He explained that the season is unleashing liquidity on the economy arising from a surge in spending, both by the political actors and the electoral body.
With heightened political activities by government, Yusuf said political leaders have rather opted for populist policies at a heavy cost to the economy, stressing that with a weak fiscal space, this would increase the fiscal deficit and plunge the country deeper into a troubled debt situation.
“The economy is already witnessing a significant injection of liquidity to fund electioneering activities by the preparations for the elections. Liquidity surge has inflationary implications.”
Therefore, he noted that the economy is likely to witness a deceleration in credit growth outlook to the private sector.
“The focus of many investors at this time will be short term in order to manage the risk inherent in the uncertainty arising from the electioneering processes and the impending political transition.”
Reeling out the headwinds which the mounting intensity and velocity of political activities portend for the economy, the CPPE boss said the polity, which is increasingly heated, has a negative implications for the investment environment, the security of lives and property and could dampen investors’ confidence.
He said approval processes for government transactions may suffer undue delays at all levels of government amid numerous distractions driven by electioneering activities, political appointees and elected officials.
For investors, Yusuf said the level of uncertainty is generally higher in a season like this. “It is much more difficult to plan for a long-term horizon because of the elevated political risk in the economy. “Many important business decisions have been put on hold, especially for long term projects. The effect is that the economy suffers as a result of these delayed decisions. This could further dip the nation’s growth outlook.”
“Consequently, the economy is witnessing a flurry of cash in domestic and foreign currency. Cash within the banking system have been significantly depleted in the past one month and trend is likely to continue till 2023.” He said
The economy is awash with cash which has implications for liquidity, for aggregate demand and surge in price level.
He noted that these political activities also have implications for the level of bank deposits, saying with the increase in political spending, the banking system is likely to witness considerable withdrawals by the political actors to fund the elections, most of these would be in cash.
“This may have an adverse effect on the level of deposits in the banking system and negatively impact on financial intermediation.
There is also an implication for credit risk in the financial system. As the tempo of political activities increase, credit risk to players in the economy becomes heightened, particularly for long term projects because of the growing uncertainty and elevated political risk. Therefore, the economy is likely to witness a deceleration in the credit growth outlook to the private sector.
The focus of many investors at this time will be short term in order to manage the risk inherent in the uncertainty arising from the electioneering processes and the impending political transition.
