Sami Olatunji and Temitayo Jaiyeola
The World Bank has said that Nigeria is in a worsening situation, with economic performance becoming weaker as inflation persists.
The Washington-based bank said this in its
newly released Nigeria Development Update, which was launched in Abuja on
Thursday alongside the Nigeria Country Economic Memorandum.
The NDU report noted, “Nigeria is in a
challenging and deteriorating economic situation. Nigeria’s economic
performance has weakened since the previous Nigeria Development Update was
published in June 2022 under the title of ‘The Continuing Urgency of Business
Unusual’.”
The financial institution also cut
Nigeria’s 2022 growth forecast to 3.1 per cent from a previous forecast of 3.8
per cent.
It said that the revision was due to slow
economic growth in the third quarter from a year earlier, dragged down by the
oil sector and a weak performance in other areas of the economy.
The bank further forecast growth to slow by
2.9 per cent in 2023.
The report read, “Nigeria’s economic output
growth has slowed and the World Bank is lowering its growth projections. Real
gross domestic product at market prices growth in the third quarter of 2022 was
2.4 percent year-on-year, on the back of a continued contraction in oil output
(-22.7 per cent y-o-y) and slowing non-oil growth (4.3 per cent y-o-y, down
from 4.8 per cent y-o-y in Q2 2022). The World Bank now projects that real GDP
will grow by 3.1 per cent in 2022 and 2.9 per cent in 2023–24, 0.3 of a
percentage point lower than the previous projections at the time of the June
2022 NDU.”
Wages lose 35% value
During his presentation of the reports, the
World Bank Lead Economist for Nigeria, Alex Sienaert, noted that the Nigerian
minimum wage, which was worth N30,000 in 2019, could be valued at N19,355
today.
This means that there had been a loss of
35.48 per cent value between 2019 and 2022 as inflation erodes Nigerians’
purchasing power.
Sienaert noted, “The cumulative inflation
between 2019 and 2022 was 55 per cent.”
He said that the rising inflation had led
to a slump in the purchasing power of Nigeria.
In the NDU report, it was noted that
consumer price inflation had heightened, making it one of the highest in the
world.
The report noted that although the CBN was
making efforts to curb the rising inflation by increasing interest rates, its
funding of fiscal deficit through the ways and means advances had made things
difficult.
Multiple challenges
The report read, “The rate of consumer
price inflation has surged and is currently one of the highest globally. The
consumer price index, already increasing at a high rate, accelerated in 2022
through October, to be up 21.1 per cent y-o-y, a 17-year high.
“High inflation has been persistent in
Nigeria for the past two decades, but since 2019 inflation has increased
substantially, driven by the multiple exchange rates and exchange rate
depreciation in the parallel market, intensified trade restrictions, and the
monetization of the public deficit by the Central Bank of Nigeria.
“In 2022, this has been exacerbated by the
spike in global food and energy prices due to the war in Ukraine and global
supply disruptions. Since May 2020, the CBN has responded by tightening
monetary policy, increasing the policy rate by 500 basis points and increasing
the cash reserve requirement by 500 bps. However, the disinflationary impact of
these measures has been weakened by continuing monetization of the fiscal
deficit, sector-specific subsidized credit provisions, and imported food and
energy cost increases.”
The report also noted that Nigeria’s
exchange rate policy settings are stifling business activity, investment and
growth, and amplifying macroeconomic risks.
More
5m poor Nigerians
The World Bank also noted that inflation
pushed five million Nigerians into poverty between January and October this
year.
The report read, “As many as 5 million
Nigerians have been pushed into poverty as a result of inflation in 2022. The
World Bank estimates that between 2020 and 2021, inflation pushed about eight
million more Nigerians below the poverty line, increasing the total number of
poor people to about 90 million. Higher inflation in 2022 is estimated to have
pushed an additional five million Nigerians into poverty between January and
September 2022, mainly through higher prices of local staples, such as rice,
bread, yam, and wheat, especially in non-rural areas.”
The Washington-based bank also said
Nigeria’s economy was highly vulnerable to shocks.
It warned that if inflation and
unemployment continued to trendhigh, insecurity would worsen in the country.
The report read, “Nigeria’s economy will
remain highly vulnerable to both external and domestic shocks, and shocks will
be exacerbated in the absence of urgently needed policy reforms to reduce
inflation, increase fiscal revenues, and shift toward a market-responsive
exchange rate.
“If inflation and unemployment remain high,
this will exacerbate domestic security risks, which in turn could further
reduce economic growth.”
According to the bank, high inflation had deteriorated
in Nigeria since 2020, corroding citizens’ purchasing power and increasing
poverty.
“Nigeria’s chronic, high inflation has
worsened since 2020, eroding the purchasing power of Nigerians and increasing
poverty. Since October 2019, Nigeria’s inflation has been persistently high.
Inflation accelerated after the closure of Nigeria’s land borders in October
2019, and increased steadily throughout 2020 due to domestic supply constraints
related to the COVID-19 pandemic. In 2021, at an average of 17 percent,
inflation was above that of the previous four years and among the highest rates
in the world.”
“During the course of 2020 and 2021,
inflation was mainly driven by higher food prices, especially for staples such
as bread and cereals, potatoes, yams, and other tubers, meat, fish, fruits, and
oils and fats. The pace of price increases eased somewhat in 2021 as the
economy reopened and domestic manufacturing and agricultural production
increased, but inflation remained high at an average of 17 percent y-o-y,” the
report added.
21.47% inflation
Nigeria’s headline inflation has continued
to rise, hitting a new high of 21.47 per cent in November 2022 from 21.09 per
cent in October 2022, according to the National Bureau of Statistics’ report
released on Thursday.
The PUNCH observed that this was the
highest rate in about 17 years.
According to the NBS, the reason for the
increase year-on-year was the increase in the cost of importation due to the
persistent currency depreciation and a general increase in the cost of
production, including an increase in energy cost.
The month-on-month increase recorded was
attributed to the sharp increase in demand usually experienced during the
festive season.
The food inflation rate also increased to
24.13 per cent on a year-on-year basis, a 6.92 per cent higher compared to
17.21 per cent recorded in November 2021.
Experts tackle govt
In a recent interview with The PUNCH, the
Deputy-President, Lagos Chamber of Commerce, Gabriel Idahosa, raised concerns
over the continued increase of the nation’s inflation rate.
He said, “We are more or less in a runaway
inflation period where inflation rate is beyond control. So it is difficult for
both the CBN and the rest of the economy to be able to adjust to any rate of
inflation because we don’t know what the rate of inflation will be monthly.”
The Director General, National Association
of Chambers of Commerce, Industry, Mines and Agriculture, Sola Obadimu said, “
We all know the implication of higher inflation rates. It means everything is
going up, and the prices are going up. And there are two things: either the
dollar rate is going up or the naira is weakening, so the cost of input is
going up.”
The Director, Centre for the Promotion of
Private Enterprise, Dr Muda Yusuf, said that the rising inflation was a major
cause for concern for stakeholders in the Nigerian economy.
He said this in a statement issued on
Thursday regarding the November inflation rate announced by the NBS.
He said, “Like in many other parts of the
world, the phenomenon of mounting inflationary pressures in the Nigerian
economy is yet to abate. It remains a
major cause for concern for stakeholders in the Nigerian economy.”
He added, “Over the last one year, the
Nigeria inflation story has been a depressing one as reflected in the dynamics
of all key price metrics.
“The key inflation drivers have not changed
over the last few years. They include the following: the depreciating exchange
rate, rising transportation costs,
logistics challenges, forex
market illiquidity, hike in diesel cost,
climate change, insecurity
ravaging farming communities and structural constraints to economic activities.
Fiscal deficit financing by the CBN is also a significant factor fueling
inflation through high liquidity injection into the economy.
“Tapering of monetary easing in the
advanced economies is also driving imported inflation and the depreciation in
the exchange rate.”
He urged the government to tame the rising
inflation and asked the CBN to refrain from tightening the monetary policy.
Yusuf said, “Taming inflation demands
urgent government intervention to fix supply side constraints in the
economy. Tackling production and
productivity constraints, fixing the dysfunctional forex policy, and reducing
liquidity injection through ways and means funding of fiscal deficit are
important.
“Meanwhile, the CBN should resist the
temptation of further monetary policy tightening. The deployment of monetary
tightening tools should be put on pause. The Nigerian economy is not a
credit-driven economy which is why the tightening outcomes has been
inconsequential as a tool to tame inflation.”
The former President of the Manufacturers
Association of Nigeria, Mansur Ahmed, described the Federal Government’s
attempt to rehabilitate refineries as wasteful.
He advised that the current refineries in
the country be sold out to save the government revenue spent on its
rehabilitation over the years.
FG seeks help
During the launch of the World Bank reports
in Abuja, the Minister of Finance, Budget and National Planning, Dr Zainab Ahmed,
said that the country needed help in financing its needs.
Represented by the Director General, Budget
Office of the Federation, Ben Akabueze, she appealed to developmental partners
and the private sector to support the government in financing its national
development plan.
She said, “I wish to conclude my address by
conceding that we need help. The Nigerian government at the national and
subnational levels cannot provide all the financing required to meet Nigeria’s
public investment needs.”
Also at the launch, the Governor of Kaduna
State, Nasir El-Rufai, said that the Federal Government failed to implement a
consensus on fuel subsidy removal, warning that states were the major losers in
the Federal Government’s policy misalignment.
Tackling the CBN on the multiple exchange
rate system, he also warned that Nigeria might end up like Sri Lanka if the
Federal Government failed to remove fuel subsidy and unify the exchange rate
system.
An aide to the President and former Acting
Governor of the CBN, Dr Sarah Alade, noted that confidence in the Nigerian
economy was very low.
She called for critical policies to boost
investors’ confidence in the economy. - PUNCH
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