HIGHER GDP GROWTH, INTEREST RATE HIKE EXPECTED IN 2022
This will be the first time in probably seven years that the GDP growth rate will surpass the country’s population growth rate. As the Nigerian economy recovers from the impact of the COVID-19 pandemic, it is projected to grow by 3.49 percent in 2022 despite base effect, according to Bismarck Rewane, an economist/CEO of Financial Derivative Company.
“Real GDP growth will be sublime, this will also be the first time in probably seven years that the GDP growth rate will surpass the country’s population growth rate,” Rewane said at the Nigerian-British Chamber of Commerce (NBCC) 2022 Economic Outlook on Thursday, 13th of January 2022.
In her address, Bisi Adeyemi, president and Council chairman, NBCC, said a major objective for hosting the 2022 Economic Outlook was imperative to undertake a comprehensive assessment of the opportunities, challenges, and indeed the threats that businesses should expect to contend with this year.
Although the numbers are different, the projected growth resonates with the World Bank and the International Monetary Fund (IMF), both of whom predicted that the Nigerian economy will grow by 2.8 percent and 2.7 percent, respectively. The projected growth would be propelled by the Information and Communications Technology (ICT) and the financial services sectors, which would provide a platform to aid the diversification of the economy in the face of fallen oil prices, devaluation of the Naira, and other prevalent economic realities.
The IMF advised emerging countries to prepare for a hike in the interest rates as this could rattle financial markets and tighten financial conditions globally. Affirming this, Rewane said CBN’s monetary policy direction will be influenced by global developments, hence there will be likely monetary policy tightening in an advanced economy, which could trigger capital flow reversals, resulting in currency weakness in Nigeria and increased debt service burden.
“As we look into 2022, we can see that there will be a debt problem as the government increases borrowing to meet deficit financing needs, this will however stifle lending to the private sector,” he said. The government plans to raise N10.74 trillion in 2022, yet they have constantly borrowed to attain the yearly revenue targets in recent years.
This has continued to push up the cost of debt servicing, which has tripled since 2015 to N35 trillion as of June 2021, according to data from the Debt Management Office (DMO). Zainab Ahmed, minister of finance, budget and national planning, said during the public presentation of the 2022 FGN Approved Budget that the overall budget deficit was N6.39 trillion for 2022, which represents 3.46 percent of GDP.
“Budget deficit is to be financed mainly by borrowings from domestic sources, foreign sources, multi-lateral/bi-lateral loan drawdowns, and privatisation proceeds,” she said. According to Rewane, inflation will remain structurally high with a full-year average of 13.3 percent driven by cost-push factors such as fuel subsidy removal, electricity tariffs, and taxes. Nigeria’s inflation rate took a turn in April 2021 and continuously decelerated for eight months and is currently at 15.4 percent.
Speaking on the impact of global trends on Nigeria, he explained that lingering global supply shortage would weigh on the supply of imported raw materials and supply disruptions coupled with the exchange rate pass-through effect will stoke inflation.