As Nigerian Economy Heats Up, CBN Steps Up Actions
The reality of the Nigerian economic situation has reached an alarming height with the recent revelation by the Minister of Finance, Budget and National Planning, Zainab Ahmed, during the recent budget performance briefing, that the federal government has spent 1, 93 trillion naira for debt service.
The amount was about 20% higher than retained earnings set at N1.63 billion for the same period.
The data also showed that debt service alone accounted for up to 41% of total expenditure, while personnel costs (including pensions) were around 27% or N1.26 trillion. leaving a meager N773.6 billion for capital expenditure (CAPEX) or 16 percent.
The continued rise in energy costs in the global market may have pushed the subsidy on Premium Motor Spirit (PMS) for 2023 to around 6.72 trillion naira, Ahmed said during the MTEF and FSP presentation.
As if the debt servicing revelations weren’t enough, the National Bureau of Statistics (NBS) said Nigeria’s headline inflation rate rose to 19.64% on an annual basis in July.
Prince Semiu Adeniran, the Federation’s general statistician and chief executive of the NBS, said the rise in inflation was caused by a rise in the food index attributed to the disruption in food supplies, an increase transport costs resulting from higher energy prices, an increase in import costs due to currency depreciation and a general increase in production costs.
For most economic experts, it is ironic, for example, that Africa’s largest economy and its largest hydrocarbon producer has suddenly become a net importer of refined petroleum products.
With its four refineries in Port Harcourt, Kaduna and Warri out of order, Nigeria continued to import refined products from abroad, thereby losing the benefits of the current rise in crude prices resulting from the Russian war. -Ukrainian.
Part of the recent distressing revelations was the fact that during the reporting period, the NNPC recorded N2.39 trillion in gross revenue from oil and gas revenues, but paid out a whopping N2.6 trillion in grant applications. This was even as an estimated N1.59 trillion was used to cover part of the grant costs over the past six months, leaving N1.01 trillion outstanding to be recovered from revenue. from July 2022 to August.
To make matters worse, all known fiscal buffers, including the Excess Crude Account (ECA) on which the government naturally relied in times of distress, have all but been eroded, leaving only internal and external borrowing windows. as the only fruit at hand for the government. his business.
The alarm raised by these developments led the International Monetary Fund (IMF) to issue a warning to the Nigerian government last July to urgently restructure its economy, as it became clear that government revenues were not reaching debt service obligations in the first four months of the year if it should avoid default.
The continued fall of the naira against the dollar has posed a threat to aircraft acquisition plans by national airlines in Nigeria, with aircraft orders worth over $4.7 billion on hold .
The main threat to the survival of national airlines today is the scarcity of the dollar, as the business is entirely denominated in dollars.
Airlines perform maintenance on their planes, buy spare parts, among other things, in dollars and also sell their tickets in dollars.
Heated economy: CBN and its enhanced actions
Although some Nigerians are pointing the finger at the CBN, expecting the apex bank to make some dollars available to the economy, the CBN is making leaps and bounds in fiscal and monetary policies to bring inflation under the ceiling .
Recall that the CBN has introduced a forex restriction to fund imports of around 45 domestically produced items among several efforts by the apex bank to ensure that forex remains easily accessible to legitimate end users in Nigeria.
CBN Governor Godwin Emefiele recently revealed that non-oil exporters had accelerated the repatriation of export earnings through the Investors and Exporters (I&E) window of the foreign exchange (forex) market in response to the RT 200 program introduced by the apex bank.
Just on August 17, the bank raised the interest rate on intervention funds provided to certain sectors from 5% to 9% while tightening its process to ensure more loan repayments.
“All intervention facilities granted from July 20, 2020 would be at 9% per annum, while all existing intervention facilities granted before July 20, 2020 would be at 9% from September 1, 2020,” said the CBN. circular noted.
However, as inflation topped 19% in July, the apex bank ordered depository banks to pay savings account holders interest at 30% of the MPR from August 1, 2022, prompting more people to save money, subtly mop up cash in circulation, a way to fight inflation, economists said.
As the CBN tries to balance the supply and demand equation of the forex supply chain, while taking other anti-inflationary measures, the harder it seems, the harder the chain turns out to hold.
What the apex bank and the government can do – Experts
The Director General of the Center for the Promotion of Private Enterprises (CPPE), Dr. Muda Yusuf, said in his response: “We can stratify the challenges of the economy into four categories. The macroeconomic challenge; which has to do with inflation, the debt crisis and the exchange rate. The structural challenge, which consists in ensuring the productivity and competitiveness of the economy, borne in large part by the quality of our infrastructures.
He said the third challenge is that of security which has become a major problem now because it affects the productivity of the economy, especially in agriculture. This affects our ability to attract investment from countries and also prevents domestic investors from investing.
Regarding the global factor, Yusuf said that Nigerians had not yet fully recovered from the COVID-19 pandemic when the Ukraine-Russia war which threatens the global food supply chain broke out, thus causing disruptions in the energy sector.
He argued that to tackle the macroeconomic problem, the government must tackle inflation by tackling the productivity problem.
In this regard, Yusuf said the government should revive the infrastructure, so that the level of competitive production can be improved and increased. “We need to repair the infrastructure to be able to support the production and employment that are essential to bring inflation down.
“Another thing we need to do is reduce inflation and moderate the pace at which the CBN finances the government deficit which is extremely high at the moment. The cumulative figure is now around 15 trillion to 19 trillion naira. A major component of inflation is food inflation and insecurity is the biggest problem contributing to food inflation.
“If we hadn’t had this kind of disruption in our agricultural sector, the situation wouldn’t have been as bad as this.”
He noted, however, that the risks and damage to the economy from the scarcity of the greenback cannot be overstated. “Imagine an economy whose manufacturing sector is largely dependent on foreign raw materials and relies on tools and machinery, including spare parts largely sourced from abroad. This presupposes that payments for these factors of production are made entirely with foreign currencies drawn mainly from the national stock of foreign exchange reserves.
According to him, a country’s foreign exchange reserves come largely from the volume of exports, either of goods and services produced in the country or, as in the case of Nigeria and other countries of the Organization of oil exporters (OPEC), oil exports, but Nigeria is at a disadvantage at the moment.
“Now we’re talking about oil thieves taking over 400,000 barrels of oil every day; we are confronted with bandits and herdsmen who kill and frighten the farmers so that they do not come to their farms; we are now facing kidnappers collecting 100 million naira per hostage before winning their freedom,” Yusuf said.
In his reaction to the bleak outlook for the Nigerian economy, the Chairman of the Apapa branch of the Manufacturers Association of Nigeria (MAN), Frank Onyebu, said: “To say that the Nigerian economy is in trouble is an understatement. . The economy is currently in a coma and needs a miracle to revive.
He thinks Nigeria should think more about production than consumption. “The country needs to shift fully to production in order to reduce import dependency. We must export rather than import. Very few companies are in production, most of them are importing, buying and selling. We need to change that. If people in different regions (states) start thinking about what they can produce, in terms of high comparative advantage, things will be better.
“We shouldn’t be thinking about the national cake, what we can get, but we should be thinking about what we can add to the national cake,” the MAN official explained.