By Merit Ibe
The Centre for the Promotion of Private Enterprises (CPPE ) has projected that the ambitious budget size of N17.1 trillion and the unpredictable revenue outlook will elevate the risk of higher fiscal deficit than projected.
It said this has implications for macroeconomic outcomes of high fiscal deficits, a new round of monetisation of the deficit, pressures on the exchange rate and the general price level.
CPPE Chief Executive Officer, Dr. Muda Yusuf, made the statement in its outlook for the economy in 2022, which it said is largely positive.
He also noted that the pressure of debt service on government finances will persist in 2022 and beyond.
“The 2022 budget provided for the sum of N3.88 trillion as debt service. This is a substantial amount when compared with the capital budget provision of N5.46 trillion. Debt service payment is typically a first line charge in budget releases.”
This was even as the centre noted that the economic players will grapple with a number of headwinds in 2022.
According to the centre, these have macroeconomic, policy, regulatory, structural and security dimensions.
He projected that the seemingly intractable problem of insecurity remains a significant risk to the economy and the impact on some sectors, especially the agricultural sector will be profound, adding that there are also concerns about the effect on the perception of Nigeria as an investment destination and implications for Nigeria country risk rating.
“Monetary and foreign exchange policy rigidities may also pose a risk to the growth outlook as there are no indications of any significant shift in monetary and foreign exchange policy stance in the near term. Consequently, the distortions inherent in the foreign exchange market will persist in 2022. The constraining effect of the high Cash Reserve Requirement [CRR] on financial intermediation would also persist in 2022 with a dampening effect on growth outlook.
“Investors will have to grapple with the barriers to international trade experienced in 2021. These are problems relating to the Lagos ports, the traffic gridlock, port congestion, bureaucratic documentation processes, extortions and the prohibitive charges by terminal operators and shipping companies are unlikely to abate in 2022. Investors would have to grapple with these constraints in 2022,’’.
“There will be intense electioneering activities in 2022, preparatory to the 2023 elections. This will cause some serious distractions for political office holders at all levels as they struggle to retain power during the elections. This will adversely impact the economy and the investment environment as considerable attention and resources are committed to the electioneering activities in 2022.
“The aggressive drive for revenue by agencies of government will put enormous pressures on investors in 2022. Beyond the regular tax authorities, other agencies of government may become more aggressive in their revenue drive. This will constitute an additional burden to investors in 2022.”
The centre however, added that the Gross Domestic Product (GDP) growth would remain fragile and projected at three percent threshold, saying the key expected drivers of growth include sustained recovery of global oil price, which it expects that the average oil price in 2022 will exceed the budgeted benchmark of sixty-two dollars ($62) per barrel, offering some fiscal headroom. “This would be powered by higher energy demand driven by the recovery of economic activities globally. This trajectory is expected to impact on our foreign reserve and strengthen the capacity of the Central Bank of Nigeria (CBN) to support the foreign exchange market.”
It also said the impact of the pandemic on the global and domestic economies was beginning to dissipate on account of increased vaccination and other measures to contain the pandemic. The capacity of many countries to manage the pandemic has progressively improved with each pandemic experience.
It projected that the service sector of the economy will continue to outpace the real sector in 2022. In the third quarter of 2021, service sector contribution to GDP was 50% and the growth of the sector was 8.41%.
Despite the downside risks, it believes that the economy will continue to present huge opportunities for investors across all sectors. This is on account of the resourcefulness of the Nigerian people, especially the entrepreneurs.
Other inherent strengths of the Nigerian economy include the market size, the population and the demographic characteristics.
“The economy will continue to draw its resilience from the activities and creativity of the SMEs and the informal sector of the economy. The reality is that the policy, structural and regulatory weaknesses will persist in 2022. But investors have a responsibility to construct their business and corporate strategies to manage the inherent risks. “