Given the recent growth the Nigerian economy has experienced, it is expected that the growth would fully outperform the World Bank’s GDP growth forecast of 1.8% in 2021, to 2.5% in full-year, 2022.
However, expected fuel subsidy replacement with a direct transfer of N5,000 monthly to subsidise the poor on transport is unlikely to take off, as Nigeria will be unable to afford this expense in its current fiscal trajectory.
This forecast was made by socioeconomic research firm, SBM Intelligence in its recent report titled, “The year ahead 2022 – Wiggling out of the rubble,” as it states that due to Nigeria’s high borrowing rate, inflation is expected to rise from Q3 2022.
What the report is saying
The report stated that, “Nigeria’s 5.01% and 4.03% growth rates experienced in Q2 2021 and Q3 2021 signify that the country can outperform the World Bank GDP growth forecast of 1.8% in 2021.
“Regarding 2022, we envisage strong GDP growth due to several factors, including oil price, oil production, expansion of financial services due to the MMO licenses issued to the telcos, and most importantly, an increase in FG spending due to the approaching election year. We project a 2.0% to 2.5% growth rate for the full year 2022.”
SBM Intelligence forecasts that oil prices would hover around $75 – $85 per barrel for much of 2022, despite the continued disruption of economic activities due to COVID-19, adding that an OPEC+ supply increase and faster-than-expected inventory drawdown would be the major factors for oil price strength.
On debt, it said Nigeria’s public debt and debt service ratio would continue to increase, as the country would fail to meet its revenue targets for 2021 and 2022, thereby forcing the FG to continue on its borrowing binge.
The report said that rising inflation in the US and other G20 markets due to stimulus spending will lead central banks to raise interest rates. This will make foreign investors demand more returns from emerging markets which may force market interest rates to rise by Q2, consequently impacting FG’s borrowing and debt profile.
It also forecasts that the local investors will find the Nigerian stock market less appealing once the Q1 earning/ dividends season is over.
On foreign exchange, the report forecasts that “The Naira will face various pull forces during the year. On the one hand, foreign currency borrowing and increased crude oil revenues will keep the foreign reserves above $35 billion and give the CBN some ammunition to defend the Naira.
“On the other hand, increased demand from politicians mopping up dollars ahead of the elections, foreign investors seeking to repatriate their funds ahead of the elections, and manufacturers seeking to import materials will be the main demand drivers. Thus, we expect some devaluation of the official IEW to about $1/₦450.”
The report also stated that inflation growth rate should continue to drop through Q1 2021, but “the high base effect, election spending, food inflation from insecurity and further tightening of imports by the CBN will cause the inflation growth rate to begin to rise again by Q3.
“The expected fuel subsidy replacement with a direct transfer of ₦5,000 monthly to subsidise the poor on transport is unlikely to take off as Nigeria will be unable to afford this expense in its current fiscal trajectory.”
Regarding politics, the report stated that most of the political blocs had begun to move, in preparation for campaigning and deal-making, especially as in 2022, gubernatorial elections would be held in 2 states—Osun and Ekiti.
“While the PDP has carried out its own congress for the election of party officials, and therefore only has to conduct one gathering to select its candidate, the APC has predictably chosen to wait and react to how the PDP moves in order to counter this. Hence, its own party congress to select party officials is scheduled for 2022,” it said.
SBM Intelligence expects consumer spending power to remain subdued in 2022 as there is no likely widespread increase in wages in sight. It also expects spending on luxury items will fall as consumers will likely adjust their spending habits in order to ration meagre resources.
