With the overall medium-term outlook for the global economy remaining uncertain amidst a Russian-Ukrainian that may not go away very soon, resulting in sanctions against Russia expected to have a considerable backlash against the world, alongside the ongoing COVID-19 pandemic, the Central Bank of Nigeria (CBN), says the country’s 2022 GDP growth may not be as robust as envisaged by the Federal Government.
In a communique issued at the end of its Monetary Policy Committee (MPC) meeting, the second for the year, held on Monday, March 22, 2022, the apex bank said Nigeria’s economy could grow by 3.24%, lower than the 4.2% forecast by the Federal Government, but better than the 2.70% envisaged by the International Monetary Fund (IMF), a member of the World Bank Group.
The global backlash, according to the communique signed by Godwin Emefiele, the CBN Governor and MPC chairman, explained is due to the interconnectivity of both Eastern European economies in the global community and financial markets.
“The extent of the backlash has, however, not fully crystallized but presents a significant downside risk to the recovery of the global economy if the crisis is not resolved immediately.
“Additionally, the COVID-19 pandemic remains a significant downside risk to global recovery as the virus continues to mutate into highly infectious strains. This is imparting a high level of uncertainty on economic agents, thus, creating inhibitions towards making the required investments to set the recovery on a sustainable path.
“As part of the lifting of restrictions associated with the COVID-19 pandemic, the strong recovery of aggregate demand has continued to pose a strong upside risk to inflation, as supply bottlenecks persist. This has been further aggravated by sanctions imposed on trade with Russia and other blockages associated with supplies from Ukraine.
“Consequently, inflation is expected to remain considerably high in the short term, even as some Advanced Economies progress with interest rate lift-off. The rise in both corporate and public debt in the Advanced Economies and Emerging Market and Developing Economies, is also a major threat to global financial stability as the risk of sustainability is heightened in the currently tensed global environment.
“Capital flows are thus, expected to be restricted as global financial conditions tighten over the short to medium term,” besides “the likelihood of subdued output growth for the Nigerian economy for most of 2022.”
This, the committee continued, “is hinged on the dampening impact to the growth of rising energy prices in the domestic economy; tightening external financial conditions as some Advanced Economies pursue interest rate lift-off; as well as the persistence of legacy security and infrastructural problems.”
As a way of mitigating the effects, members however, expect “that monetary and fiscal stimuli will remain in place to continue to support the recovery until the downside risks to growth and the upside risks to inflation dissipate substantially.”
The MPC expressed concern over the impact of the global price increase in petroleum and other products on practically all economies, resulting “in imported inflation on the Nigerian economy,” expressing belief that specific actions must be taken to ensure that this trend does not continue, given the adverse consequences and aggressive rising price level could have on the cost of living and purchasing power of Nigerians.
Before the Russia-Ukraine war, the MPC said it “was optimistic that the moderate decline in inflation was sustainable due to the positive impact of good harvest on price levels, expressing worry that global prices have gone up, and has been compounded by the shortage of supply of petroleum products.
“In the short run, MPC urges NNPC (the Nigerian National Petroleum Company Limited) to take urgent steps to ensure an adequate supply of petroleum products in Nigeria so as to reduce the rate of arbitrary increase in the price of petroleum products by oil marketers.
“The committee noted, with grave concern, the unprecedented rate of oil theft recorded in recent time, and its debilitating impact on government revenue and accretion to reserves,” while noting in the medium-term, hope that the proposed take-off of the Dangote Refinery in the course of the year would help to improve the supply of petroleum products in Nigeria.
Moreover, the committee expressed discomfort that “the rising price of diesel is compounded by the problem of inadequate electricity supply which has adversely impacted domestic prices,” calling on the CBN management and the fiscal authorities to take specific and urgent actions to avoid many power generating stations shutdown for turn-around maintenance, resulting in the current unwarranted shutdown of generating assets.”
Noting the marginal decline in food inflation due to good harvest, even as some scarcity is expected ahead of the planting season, “the committee is optimistic that with the high level of strategic grain reserves of the CBN, it is relieved that food prices would remain relatively moderated.
“MPC further advised (the CBN) management to redouble its developmental finance initiatives aimed at boosting domestic food output which would help in moderating food inflation going forward, thereby moderating headline inflation.