New Telegraph

Economists: Nigeria’s 2023 outlook bleak, without policy changes

In this report, PAUL OGBUOKIRI x-rays the damning verdict of the Bretton Wood Institutions and Economists on the poor state of Nigeria’s economy. He concluded that the incoming administration has a Herculean task of revamping the economy

Deeper into debt

With the rise in inflation, increase in unemployment and high rate of poverty in Nigeria, the state of the country’s economy is becoming more and more worrisome. This came as Nigeria’s participation, at the 2023 edition of the World Bank Group (WBG) Spring meetings for the first time ever was coloured with policy protest coming from civil society groups. The Executive Director of Civil Society Legislative Advocacy Centre, (CSLAC), Auwal Rafsanjani, one of the groups from Africa, told journalists that civil society groups in Africa held a session with the Bretton Woods Institutions to discuss issues of accountability and governance in respect of debt servicing. The groups raised concerns with the World Bank and the International Monetary Fund (IMF). Basically, they are against Nigeria’s incessant borrowings from the two institutions, especially the latest borrowing of $800 million which the government said would be paid to Nigerians as oil subsidy removal palliative. According to the group, the borrowing has plunged the nation deeper into debt crises to be faced by generations of citizens that did not benefit from the loans. Rafsanjani alleged that the funds borrowed were not used for the purpose they were meant for. Rather, they were taken up by corruption. His words: “The Nigerian economy is suffering from many problems, from corruption to mismanagement, misplacement of priority, lack of compliance with our financial regulations. “Nigeria continues to repay these money (loans) despite the deficit in our infrastructure, in other social sectors that suffer significantly, like almost the collapse of education, healthcare system, and other important aspects of governance like security.”

Incoming administration to inherit N77trn debt

The Director General of Debt Management Office (DMO), Patience Oniha, said the incoming administration would inherit about N77 trillion as debt by the time President Muhammadu Buhari’s tenure ends in May. Oniha said this while fielding questions from journalists at the public presentation and breakdown of the highlights of the 2023 appropriation act in Abuja last week. Buhari had signed the N21.83 trillion 2023 budget into law, with a deficit of N11.34 trillion. The deficit represents 5.03 per cent of the country’s gross domestic product (GDP). Minister of Finance, Budget and National Planning, Zainab Ahmed, had said that the Federal Government would finance the deficit by borrowing. On funding sources for the N11.34 trillion 2023 budget deficit, the minister said 22 per cent of projected revenues will come from oil-related sources while 78 per cent would be earned from non-oil sources. To fund the deficit, according to Ahmed, N7.04 trillion would be borrowed from domestic sources, N1.76 trillion from foreign sources, N1.77 billion from multilateral and bilateral loan drawdowns, while privatisation proceeds would provide N206.18 billion. Meanwhile, the Federal Government borrowed N6.3 trillion from the Central Bank of Nigeria (CBN) in the first 10 months of 2022 through ways and means. Ways and Means is a loan facility through which the CBN finances the government’s budget shortfalls. In October 2022, the Federal Government said it would repay the N20 trillion debt owed to the Central Bank with securities such as treasury bills and bonds issuance. But speaking at the budget presentation, Oniha explained that the move by the Federal Government to securitise the loans (ways and means) from the Central Bank would drive up the debt to about N77 trillion. Although data released by the DMO had put Nigeria’s public debt at N44.06 trillion as at the third quarter 2022, the Federal Government plans to borrow more to finance both the supplementary and 2023 budgets. “There are a lot of discussions on the ways and means. In addition to the significant cost saving in loan service we would get by securitising it, there is an element of transparency in the sense that it is now reflected in the public debt stock,” she said. “Once it is passed by the National Assembly, it means we will be seeing that figure included in the public debt. You will see a significant increase in public debt to N77 trillion,” Oniha said.

Growth to slow in 2023 and 2024 — IMF/WB

The International Monetary Fund (IMF) has retained its growth forecast for the Nigerian economy in 2023 at 3.2 per cent. The Washington-based lender, in its “World Economic Outlook: A Rocky Recovery 2023 APR” released on Tuesday also projected that the country’s economy would grow at 3.0 per cent in 2024. In a similar development, the World Bank noted that high oil prices since 2021 did not boost the performance of the Nigerian economy as has been the case in the past. Rather, macroeconomic stability weakened, amidst declining oil production, a costly petrol subsidy which is consuming a large share of gross oil revenues, exchange rate distortions, monetization of the fiscal deficit, and high inflation. The deteriorating economic environment is leaving millions of Nigerians in poverty. On current trends, with Nigeria’s population growth continuing to outpace poverty reduction, the number of Nigerians living below the national poverty line will rise by 13 million between 2019 and 2025. The economy is projected to grow by an average of 2.9 per cent a year between 2023 and 2025, only slightly above the estimated population growth rate of 2.4 per cent. Growth will likely be driven by services, trade, and manufacturing. Downside risks to this growth outlook have intensified, with most of the risks coming from domestic policies, continued low (albeit recently rising) oil production, and scarcity of both foreign exchange and local currency.

2023 budget amplifies troubling fiscal outlook

Reactions have continued to trail the proposed N20.51 trillion 2023 national budget with an oil benchmark fixed at $70 per barrel. The Chief Executive Officer (CEO), Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, in an interview disclosed that the 2023 budget amplified a troubling fiscal outlook for Nigeria economy. Yusuf said the Central Bank of Nigeria (CBN) may likely finance the coming year’s fiscal deficit given the country’s dwindling revenue performance trajectory. Yusuf, who was also the former Director General of the Lagos Chamber of Commerce and Industry (LCCI) further said Nigeria’s debt profile would be more than N70 trillion by the end of 2023, if caution was not applied. He suggested that the government should focus on returns on investment from its assets especially within the maritime, oil and gas enterprises. “The 2023 Federal Government budget has further amplified the troubling fiscal outlook for the economy. Expenditure continues to accelerate amid consistent weak revenue performance. “We have a budget of N20.51 trillion and revenue projection of N9.73 trillion. This is a deficit of N10.78 trillion. In all probability, the deficit will be much bigger by year end because of the track record of revenue under performance over the last couple of years. “We are also likely to see an acceleration of CBN financing of the fiscal deficit given the revenue performance trajectory. The public debt stock is growing and currently at N42 trillion. “With additional new borrowing of N8.8 trillion, the debt profile will be inching close to N50 trillion by May next year. If we take into account the borrowing from the CBN (ways and means), which is currently about N20 trillion, we will have a total debt of N70 trillion by the end of 2023. This should be a cause for concern,” Yusuf stated. Recall that Fitch Rating had downgraded Nigeria’s rating to ‘B-’ from ‘B’ in November 2022; saying the country’s fiscal profile will remain weak in the medium term. General government interest/ revenue is extremely high (47 per cent in 2022 by Fitch’s estimate) and “we expect it will remain so given constraints on revenue mobilisation, increasing debt and high interest rates. Structurally, low non-oil revenue, spending pressures and weak economic growth imply substantial fiscal financing needs. The government faces external debt amortisations of $2.5 billion in both 2023 and 2024, an increase on recent years, although the majority is bilateral and multilateral debt service.”

2023, a new dynamic

However, the Chief Executive Officer of Economic Associates, Dr Ayo Teriba, said the 2023 presidential election produced the most spectacular developments as a prominent leader of the democratic struggle is set to get a first bite at the presidential cherry, after emerging as President-elect after a 24-year wait since the return to democratic rule in 1999. Teriba in a recent paper titled “How 2023 Elections Will Reshape Nigeria’s Future” which he presented at BancTrust &Co Webinar; disclosed that “four of the past six elections crowned rebranded former military rulers, and two crowned their handpicked successors, while leaders of the democratic struggle had to manage parties and parliament, with no influence over the president. This is the first time that a party will control both the presidency and the parliament since 1999.” This and other outcomes according to him should create new dynamics that would reshape Nigeria’s future.

Speeding up economic growth

Financial experts have urged the incoming administration to address headlong issues that will prevent positive and speedy economic growth in 2023. Prof. Ndubisi Nwokoma, Director, Centre for Economic Policy Analysis and Research (CEPAR), University of Lagos, said the economic prospects for 2023 might not be positive for Nigeria. Nwokoma said the recurring fiscal sustainability challenge and the uncertainties created by the disputed outcome of the 2023 General Elections would affect the country’s economic growth. “GDP growth may be dampened, moreso, with the persisting infrastructural deficit in support of production across sectors. “So, issues of challenge in 2023 like the fuel subsidy resolution, public debt overhang, low investment inflows and declining capital importation, should be addressed headlong by the incoming administration,” Nwokoma said. Also, Prof. Akpan Ekpo, Chairman of the Foundation for Economic Research and Training in Lagos, believed that the projection was possible due to domestic and global mega trends.

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