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The economy under the watch of President Muhammadu Buhari has been grappling with many challenges despite his promise to make it better on assumption of office over seven years ago. The performance of major indicators in the first-half (H1) of the year showed weakened economic growth and fragile recovery. All of these will lead to a bleak economic outlook for the second-half (H2), if the situation is not urgently addressed.
The factors hampering economic recovery include growing debt burden, inflationary pressures, worsening foreign exchange (FX) crisis, poverty, unemployment, low foreign direct investments, insecurity, and others. A review of the macroeconomic environment in the first-half of 2020 showed that real Gross Domestic Product (GDP) growth rate was only 3.11 per cent. This is against government’s projected six per cent within the period, according to figures from the National Bureau of Statistics (NBS). For the month of May, inflation rate measured 17.71 per cent, the highest in 30 months. The inflation rate was 16.82 per cent in the month of April. This resulted in an increase in the benchmark interest rate by the Central Bank of Nigeria, to 13 per cent in May from 11.5 per cent, the first time in six years.
Projection is that inflation could spike even higher in the H2, and worsen the purchasing power and standard of living of most Nigerians, as well as the cost of production. Within the H1 2022, poverty level and unemployment rate worsened. According to the World Bank report, Nigeria added about six million people to its poverty net, bringing the poverty figure to over 96 million. This represents 49 per cent of the total population estimated at 200 million. Unemployment rate has risen to over 35 per cent, with youth unemployment at a new high of over 40 per qcent, according to data from the NBS.
Also, in the first- half year under review, the naira recorded unprecedented depreciation against international major currencies in both official and parallel markets. By the end of June, the official rate was N415/USD, while the parallel market was N615/USD. Worse still, according to the Debt Management Office, Nigeria’s public debt stock rose by N2.04 trillion in the first quarter (Q1, 2022) to N41.06trillion. Besides, Nigeria’s foreign exchange reserves declined from $40.52 billion at the end of last year to $39.15billion on June 30, 2022. Consequently, Nigeria’s debt-servicing bill increased by 109 per cent from N429billion in Q4, 2021 to N896.56billion in Q1 2022.
In Q1 2022, domestic debt servicing was N668.69billion, and $548.79 million (N227.87billion) on external debt servicing, giving a total of N896.56billion. Borrowing is still increasing, while the country is struggling to service the debts amid weak revenue generation in spite of upward trend in the prices of crude oil in the international market. This is probably why JP Morgan recently removed Nigeria from its list of emerging markets. While Nigeria has not been able to take advantage of high oil prices, Saudi Arabia’s Aramco has become the most valuable state-owned oil company in the world, valued at $2.4trillion.
The ugly development is hampering the economy, and making recovery difficult. But, we believe that the government can still lift up the economy from its present doldrums despite foreboding forecast that the economy may experience further slowdown in the second-half (H2) of this year as it grapples with an avalanche of headwinds. We enjoin the government to initiate monetary and fiscal policies that must tackle the current debt crisis, inflationary pressures, forex scarcity, poverty, unemployment and insecurity. Sadly, the nation’s power supply worsened in the first-half of the year, with the national grid collapsing many times. Fuel scarcity and high cost of petrol and diesel, has increased the cost of production and prices of food items.
We believe that a unified Forex market rather than the present multiple FX rates will enhance stability, liquidity and transparency in the Forex market. Government can, in the second-half of the year, take advantage of Nigeria’s trade balance which stood at a surplus of N1.2trillion in the first quarter of 2022. We also believe that the encouragement of more non-oil and automation of ports’ operations will substantially improve the economy. Also, ensuring security, forex liquidity and enhancing the ease of doing business will attract more direct foreign investments.
Government should evolve measures to rescue the economy because it cannot withstand another recession.
