A Year of Grim Realities

Amid diverse economic headwinds that consecutively set Nigeria on a slippery retrogressive path, 2022 depicts a period of grim realities with damning outcomes that may linger beyond the year of regime change, Gboyega Akinsanmi writes.

Today marks the beginning of the last week of 2022. And Nigerians – the poor or the rich, the aged or the youth, the elite or the masses – have all witnessed a year, in which the country’s foremost economists unanimously agreed, has precipitated significant distortions in the household, private and public finances.

 This consensus is no doubt rooted in the poor performance of Nigeria’s domestic economy during the timeframe. And its consequences, as x-rayed in various institutional reports, have cost millions of their jobs; increased the cost of living; widened the country’s cycle of extreme poverty; stagnated the economic growth and historically shrunk the opportunities across all strata of the federation.

Perhaps, by coincidence, the World Bank substantiated these growing concerns in its latest report, Nigeria Development Update, officially released a penultimate week. In summary, as the bank observed, Nigeria is in a challenging and deteriorating economic situation. Since June 2022 also, its economic performance has weakened, compounding pressures nearly on every household.

For most economists, the conclusion of the bank is not unexpected. However, it further deepened public concerns about the economic model the administration of President Muhammadu Buhari had adopted to address the most vicious headwinds that grievously triggered setbacks across all sectors.

As much as the country’s foreign exchange rates crashed by about 100 per cent, the current year indeed began with untamable inflationary pressures, which Director-General of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf claimed, had, on the one hand, destroyed the purchasing powers of the low-income earners and on the other hand weakened the net worth of the corporate leaders or high-income individuals.

The inflationary pressure was palpable, indeed consequential, on the living standard of the masses, as indicated in different reports of the National Bureau of Statistics (NBS). From 15.60 per cent in January, inflation has been mounting all through the period under review. In February, it skyrocketed to 17.71 per cent in May; 20.52 per cent in August and 21.47 per cent in November.

The implication is indeed grave, inducing the trajectory of inflation by 37.63 per cent between January and November. Its food component further exerted much pressure on low-income earners, especially the working class, whose monthly earnings could no longer support their cost of living daily.

From 17.13 per cent in January, as revealed in the records of the NBS, food inflation accelerated to 24.13 per cent in November. Its variation represented an increase of 40.86 per cent in the composite prices of food items within the timeframe, the highest ever recorded in the country’s recent history.

Other components of the 2022 consumer price index are not too different as shown in the reports of the NBS. Among others, for instance, transportation costs surged by 16.62 per cent; housing utilities by 14.43 per cent and core inflation, which by definition excludes farm produce, rose by 31.22 per cent between January and November.

At different times, economists have explained the dominant drivers of the mounting inflationary pressure in the context of the country’s social and political realities. The drivers, as Chief Executive of Economic Associates, Dr. Ayo Teriba once put it, comprise internal instability, foreign exchange crisis, climate change, high diesel price and other structural constraints to economic activities.

But addressing these tendencies with cohesive fiscal policy responses has been a worrisome fissure that the Buhari administration has failed to bridge either by design or by default.  Consequently, according to Yusuf, its response has been ineffective and largely weak, hence complicating the burden of daily decent living largely for low-income earners and middle-class citizens.

 The weak response of the government has partly been attributed to the inability of NNPC Limited to remit a dime of its projected revenue to the Federation Accounts in the year. This failure contravenes the country’s standard fiscal tradition, which delineates the dependence of the government on oil rents, royalties and sales always remitted by the state oil giant.

 Even though crude prices have been between $69.54 and $132.21, it has had little or no impact on the national economy, a trend that worsened fiscal and liquidity crises at all levels of government. The government no doubt acknowledged this missed opportunity. But the industry players blamed it on crude theft, which according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), crashed production by 24.73 per cent in September.

 The drop undermined public governance at home alongside other geopolitical dynamics, especially the Russia-Ukraine conflict, which escalated global oil and food prices. The dynamics had huge consequences on the cost of petrol. While it stoked fuel scarcity, the dynamics placed a huge burden of funding subsidy regimes on the governments.

 From N1.43 trillion subsidy claims in 2021, the records of the NNPC showed their upswing to N2.565 trillion by August 2022. This created a 79.37 per cent increase, propping up two key issues. First, the claims significantly decapitated NNPC’s commitments to the Federation Accounts. Second, the trend created a huge budget deficit of N3.09 trillion between January and April alone.

The realities defined the federal government’s fiscal policy response, not just in 2022, but also since Buhari assumed office in 2015. Its response largely favoured unprecedented borrowing despite the country’s revenue crisis escalation, which Chief Economist, Standard Chartered Bank, Razia Khan had once argued, required the government’s more decisive response.

This condition is evident in the growth of the country’s total debt stock. As of December 2020, for instance, the debt stock was N32.92 trillion. But it further went up to N39.565 trillion in December 2021, which accounted for a 22.09 per cent increase when compared to the previous year. As of September 2022, it had risen by N11.36 per cent, bringing the country’s total debt stock to N44.06 trillion.

With this trend, managing its steadily escalating debt crisis is gradually turning into a nightmare the government can no longer avoid. In the first quarter of 2022, the nightmare became evident in the national balance sheet as the debt service cost was about 15.97 per cent higher than the actual revenues generated within the timeframe.

However, recent reports from the Debt Management Office put the country’s debt service-to-revenue ratio at 83 per cent. For most economists, this proportion can aggravate its intractable economic headwinds, mainly after the 2023 elections and put the sub-national governments in an inclement fiscal condition. 

The costs of Buhari’s fiscal policy response are gradually becoming more grievous and heinous than ever witnessed in the country’s recent history. The NBS attested to this conclusion in its 2022 Multidimensional Poverty Index (MPI), which drew global attention to what might expedite the country’s descent to anarchy unless pro-people measures are evolved to tame the whirlwind.

 As shown in this index, the NBS now put the total number of poor people in the country at 133 million, equivalent to 63 per cent of its estimated population. Also, the trend of abysmal economic performance might further push 23 million into the cycle of extreme poverty as the World Bank had recently predicted and shot up the country’s vicious unemployment curve beyond its current status, standing at 33.33 per cent.

With these grim economic realities, does Nigeria still have a choice beyond its prevailing responses? Economists largely agreed that Nigeria’s fiscal challenges are not beyond redemption. Teriba, for instance, observed that increasing the tax burden and resorting to borrowing could no longer guarantee the country’s fiscal stability and economic growth.

Rather, Teriba suggested the need for the government to leverage its assets to unlock fiscal liquidity, an approach that had worked for Brazil, China, India and Saudi Arabia. This entails the government opening a national assets register; listing all its assets to determine their real values and selling part of its stakes to the private interests to generate the liquidity it needs for public governance.

Consistent with Teriba’s broader measures to tame the country’s raging economic headwinds, Khan suggested the need to stabilise the Naira and address security challenges nationwide to forestall its gradual descent into anarchy or social unrest. In its latest update, the World Bank was more specific as to how to de-escalate the vicious headwinds upsetting the national economy.

Among others, its antidotes include ending the subsidy regime; maintaining a singular foreign exchange rate; ensuring internal stability and implementing critical macroeconomic and structural reforms that can reduce crisis vulnerabilities and increase growth.

As 2022 enters its last week, the rationality of the choice the government will embrace determines the trajectory of the economy in the coming year, whether it will continue to maintain its downward trend or take a new course upward.