MACROECONOMIC ISSUES
Gross Domestic Product (GDP) / Revenue
Nigeria is projected to record a GDP growth rate of 3.0 per cent in 2023. In the opinion of the Centre for Economic Policy Analysis and Research (CEPAR), the GDP growth rate target may not be attained as stipulated in the budget. The Federal government's projection that Nigeria’s real GDP growth will rise to 3.75% in 2023, following from a revised projection of 3.55% for 2022 appears unrealistic. With expansion in expenditure programmes and shrinking government revenue, the Nigerian economy appears to be headed for a major crisis similar to the situation in Venezuela and Sri Lanka which currently have debilitating economic crisis. As a major oil producing country in Africa, Nigeria has not benefitted sufficiently from both the recent increase in oil prices and high demand in crude oil due to the Russia/Ukraine war. This is due to the reported prevalent massive oil theft as well as pipeline vandalisation which inhibits the country from meeting up with its production quota from the Organisation of Petroleum Exporting Countries (OPEC).
Fiscal Challenges / Debt Sustainability
The poor state of the country’s fiscal circumstances will further exacerbate the fiscal sustainability challenges at both the federal and state government levels given that the fiscal condition of almost all the States of the Federation will weaken in 2023 and statutory transfer to the States will decline. With such fiscal pressure, debt servicing is expected to increase at the federal and state levels which will lead to poor infrastructural financing, high level of insecurity, investment stagnancy, lack of competitiveness, poor human development, and an increase in unemployment. Nigeria’s debt burden of over N80 trillion and a projected deficit of over N11 trillion in the 2023 budget means that Government will have to borrow to pay interest on its debt obligation thus worsening the debt service payment to revenue ratio. Thus, Nigeria faces a debt sustainability challenges with the huge amount of deficit and growing debt in 2023, the country may go into bankruptcy and loan default.
Inflation /Exchange Rates
The inflation rate target of 17 per cent in 2023 budget may not be attainable given the preponderance of many inflation-inducing factors such as the proposed fuel subsidy removal as well as instability in the exchange rate. This could be worse than the present 21.7 percent recorded in the third quarter of 2022. The year 2023 may thus turn out to be more inflationary relative to 2022. The anticipated elections liquidity upsurge in 2023 and the inability to maintain a stable exchange rate policy stance are also contributory. The volatility in the exchange rate and over-dependence of the fiscal authorities on the Central Bank for Ways and Means advances to finance budget deficit will exacerbate price pressure. The exchange rate will be affected because there will be a worsening in capital importation arising from national and global economic uncertainties.
Naira Re-Design
The CBN mentioned money hoarding, inflation and counterfeiting as core objectives of redesigning the Naira and that about N3.23 trillion are outside the banking control. This policy may not have significant economic benefit due to the fact that the cost of printing these new notes and other logistics is high compared to the value of the notes. Due to the pressure of excessive dumping of the old notes in the purchase of foreign currency, the introduction of the new notes may increase the tendency for further currency depreciation and an increase in the inflation rate in 2023. The naira designing may not be an effective tool to curb hoarding as the hoarders can easily exchange the old notes with the new ones or convert to other currency (dollars) and still hoard for future use especially during elections for vote buying. The political class are those who have the capacity to hoard such a huge amount.
MICROECONOMIC AND SECTORAL ISSUES
Agriculture
On developments in the Agricultural sector, it is expected that farm-gate prices of food crops will rise thus increasing food prices generally. This is as a result of continuing supply chain disruptions and incessant insecurity in the country which will further lead to increase in poverty and hunger in 2023. Nigeria may risk a food crisis in 2023 due to an increase in the prices of production input (fertilizers), natural disasters like floods that occur in several states in 2022 and climate change. All these will lead to a reduction in Agricultural productivity and increased food prices in 2023.
Fuel Subsidy Removal
The situation in the country’s energy sector leaves much to be desired. The Government proposed phased removal of subsidy of the premium motor spirit (pms) from June 2023 will definitely put pressure on inflation. If the subsidy is removed and pms costs an average of over N400 per litre, costs of living and costs of production will increase thereby lowering the standard of living and the incidence of poverty in 2023. It will also lead to increase in insecurity level and oil theft.
Manufacturing
The recurring challenges to the manufacturing sector are expected to persist with the multiplicity of exchange rates in the economy and the dire need of imported inputs for manufacturing sector production. The huge divergence in rates between the official and parallel foreign exchange markets fuels round-tripping and counterproductive in relation to the supply of foreign exchange for the use of manufacturers. The operating environment is also not conducive with the persisting level of insecurity in the country and the relatively poor state of basic infrastructure.
RECOMMENDATIONS
Based on the above analysis/projections for 2023, the Centre states as follows:
- 2023 appears bleak in terms of GDP growth except a good leadership is elected. Otherwise, any poverty-reduction effort of the Government may not yield the desired results.
- Structural reforms may be necessary to further support the fight against inflation by improving productivity and removing or easing supply chain disruptions.
- The vexatious Oil theft must be addressed in 2023, if progress in revenue enhancement is to be achieved.
- The authorities must ensure that Cost of Governance is reduced across the three tiers of government
- There is an urgent need for the Federal Government and policymakers to restore macro-economic stability by expanding agricultural spending in order to achieve future resilience in the sector
- There is a need for fiscal policies that support current efforts by the Central Bank to curb inflation in order to protect the vulnerable in the country.
- Nigeria needs real leadership in order to address the debt crisis and fiscal challenges by tightening tax loopholes and reducing the cost of governance.
- Monetary policy should stay the course to restore price stability, also, fiscal policy should aim to alleviate the cost-of-living pressures while maintaining a sufficiently tight stance aligned with monetary policy
- Fiscal policy can help the economy to adapt to more volatile environments by investing in productive capacity, human capital, digitization, green energy and supply chain diversification.