The year 2022 was supposed to be the year of full recovery from the shock of the Covid-19 pandemic and its attendant problems, however the war between Russia and Ukraine put a damper on any growth forecasts as food inflation rose to world level.
With inflation reaching record levels in many countries around the world in 2022, the trend is expected to start declining in 2023. For
For Nigeria, while the rise in inflation is expected to moderate and begin a downward trend, the main challenge for economic managers will be financing the country’s budget for 2023 and even more so due to the already very high stock of public debt. . With a total government debt of N44.06 trillion at the end of the third quarter of 2022, analysts expect the debt burden to continue to rise.
The chief executive of the Center for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said he expects Nigeria’s debt profile to reach 70 trillion naira this year.
Dr Yusuf, former CEO of the Lagos Chamber of Commerce and Industry (LCCI), explained that “in all likelihood, the deficit will be much higher by the end of the year due to the underperforming revenue record in recent years”. .
“We are also likely to see an acceleration of fiscal deficit financing from the Central Bank of Nigeria (CBN) given the trajectory of revenue performance. The stock of public debt is growing and currently stands at N42 trillion.
Noting that a number of issues need to be addressed to achieve the nation’s fiscal sustainability aspiration, he said that state-owned enterprises managing huge economic assets must justify the value of the assets at their disposal; and the return on oil revenue should be much better given the prevailing world oil price.
He noted that the exchange rate policy regime is having an adverse impact on the business environment and needs to be urgently addressed, saying weak private sector performance would naturally hit non-oil tax revenues.
He also said that there is a need for budget reforms, adding that budget allocations should reflect pressing national economic priorities.
According to the World Bank’s lead economist for Nigeria, Alex Sienaert, Nigeria’s debt service is expected to absorb 123.4% of federal government revenues in 2023.
“Debt service has increased over the last decade and is expected to continue to rise in the medium term, crowding out productive spending,” he said, noting that the size of public debt in Nigeria will continue to be a concern due to rising debt service. Debt. in relation to income and the situation is expected to be serious in 2023.
Inflation in Nigeria rose to a 17-year high by more than 21 percent and global inflation is expected to peak at 9.5 percent in 2022 before falling to 4.1 percent by 2024. However, As central banks around the world have tightened, raising benchmark interest rates across the board, global growth is expected to slow in 2023.
According to International Monetary Fund (IMF) economic adviser Pierre-Olivier Gourinchas, in a blog post accompanying the fund’s October World Economic Outlook, more than a third of the global economy is headed for contraction. between 2022 and 2023.
“This year’s shocks will reopen economic wounds that were only partially healed after the pandemic. The worst is yet to come and for many people 2023 will feel like a recession,” Gourinchas said.
In its report, the IMF cut its 2023 global GDP forecast to 2.7%, 0.2 points below July expectations, as Gourinchas warned that misjudging persistent inflation could prove detrimental to stability. future macroeconomic “by seriously undermining the hard-won credibility of central governments. banks.’
Earlier in the year, the global economy was projected to extend the strong post-pandemic recovery of 6.1% in 2021 with a baseline growth rate of 3.6% in 2022.
However, this bullish outlook was affected by the multifaceted negative effects of the ongoing war in Ukraine and aggressive monetary policy tightening by global systemic central banks aimed at reining in runaway inflation.
Following these events, the IMF, in its October 2022 World Economic Outlook (WEO) report, lowered its 2022 global growth projection to 3.2%, its third cut since the war in Ukraine began in february.
In Nigeria, the combined effect of one-year structural challenges, policy misalignment and negative externalities have started to reduce the recovery momentum recorded in 2021. In the third quarter of 2022, Nigeria’s GDP growth slowed from 3.1 to 2.3%. percent and 3.5 percent in the first and second quarters of 2022, respectively.
World events aside, Nigeria’s economy has slowed as public debt piled up amid the exchange rate crisis. According to Afrinvest West Africa analysts, Nigeria’s economic managers failed to optimize their human capital potential and favorable oil prices. We expect factors to drag due to the political transition and the time it would take for policy reforms (if any) by the incoming administration to manifest gains. Therefore, we estimate 3.3 percent. GDP growth for 2022 and project growth of 3.0% for 2023.
Meanwhile, the Governor of the Central Bank of Nigeria (CBN) projected that inflation in the country is expected to ease in the new year.
The main bank’s governor, Godwin Emefiele, had stated that with the various monetary policy tools the CBN uses, he expects inflation figures to decline steadily to below 15 percent by the end of 2023.
Noting that the 2023 elections would trigger a slight rise in inflation, but then there would be a continued slowdown in inflation, he said: “inflation expectations are rising as existing structural rigidities are exacerbated by global factors and the anticipated increase in liquidity related to the elections. For the remainder of 2022 and into mid-2023, Nigeria’s inflation rate is projected to remain elevated and above the growth support threshold of 12.5%.
“However, in the context of our past policy actions, and as the effect continues to permeate the system, our internal model-based simulations indicate that the inflation rate could fall steadily to below 15 percent by the end of the year. 2023”. Regarding the course of monetary policy in 2023, he pointed out that in the coming years monetary policy will remain focused on the objectives of price, monetary and exchange rate stability.
“Our policy stance will therefore remain tight to reduce inflationary pressure, regulate capital flows and keep the naira-dollar exchange rate afloat. Monetary policy decisions will remain balanced, judicious, research-based, appropriate and supportive of the real economy subject to underlying fundamentals. We will maintain our current tight monetary policy stance in the near term, especially in view of rising inflation expectations and foreign exchange market pressures. However, we will act to appropriately adjust the policy rate according to developing conditions and prospects,” he stated.
For the banking industry, banks are expected to invest more in technology as they were significantly affected by the brain drain in 2022. This is also due to the CBN cashless policy which will come into effect from 9th of January 2023 is expected to see more electronics. transaction in 2023.
Analysts at Cordros Research say they believe Nigerian banks will continue their growth trajectory supported by core income, due to higher lending and investment security returns.
“However, we think banks will be cautious about increasing lending domestically in fiscal 2023, as tight monetary conditions are likely to limit risky asset creation. On the external front, Moody’s downgraded the long-term ratings of nine Nigerian banks due to the weakening of the Nigerian government’s fiscal capacity to support Nigerian banks and the interlinkages between the sovereign’s weakened solvency and bank balance sheets, given the important participations of the banks. of sovereign debt securities.
“We expect non-core revenue to support earnings in fiscal 2023, albeit marginally, as price sharing and the failure of online banking platforms will continue to hurt performance. Also, we believe this will have a negative impact on Nigerian banks looking to get foreign debt,” he noted.