CPPE Predicts CBN’s Forex Policies May Harm Economic Growth in 2022

Centre for the Promotion of Private Enterprise (CPPE), an economic think tank, has declared that the “monetary and foreign exchange policy rigidities” of the Federal Government may disrupt the economic growth of the nation in 2022.

The Centre made this known in its ‘2022 Economic Outlook’ report.

The Central Bank of Nigeria (CBN) is responsible for monetary and forex policy in the country.

The organization noted that there is no indication that the nation will shift from its current monetary and foreign exchange policy and this may hamper economic growth in 2022.

According to the Centre “Monetary and foreign exchange policy rigidities may also pose a risk to the growth outlook as there are no indications of any significant shift in monetary and foreign exchange policy stance in the near term.

“Consequently, the distortions inherent in the foreign exchange market will persist in 2022. The constraining effect of the high Cash Reserve Requirement on financial intermediation would also persist in 2022 with a dampening effect on growth outlook.”

It highlighted that while the economic outlook for the Nigerian economy in 2022 is largely positive with Gross Domestic Product (GDP) growth to remain at a fragile three per cent, the problem of insecurity will impact significantly on the economy.

It pointed out that the agricultural sector in particular would be affected, due to the fact that the perception of Nigeria as an investment destination continues to diminish.

It stated that investors would have to tackle the barriers to international trade experienced in the nation in 2021.

The economic think tank hinted also that the problems relating to the Lagos ports, the traffic gridlock, port congestion, bureaucratic documentation processes, extortions, and the prohibitive charges by terminal operators and shipping companies might continue in 2022.

The CPPE stated, “There will be intense electioneering activities in 2022, preparatory to the 2023 elections. This will cause some serious distractions for political office holders at all levels as they struggle to retain power during the elections.

“This will adversely impact the economy and the investment environment as considerable attention and resources are committed to the electioneering activities in 2022. The aggressive drive for revenue by agencies of government will put enormous pressures on investors in 2022.

“Beyond the regular tax authorities, other agencies of government may become more aggressive in their revenue drive.  This will constitute an additional burden to investors in 2022.”

The organization stressed that the Federal Government is unlikely to fully remove petroleum subsidy in 2022 because of the 2023 elections.

Therefore, it said that the economy would have to bear the heavy fiscal burden of this policy, and the full implementation of the Petroleum Industry Act (PIA) and the reform of the downstream sector would be affected.

It therefore proposed Dangote Refinery might abate some fiscal pressure in 2022 if it comes online.

The government would continue to spend a lot of its revenues on debt servicing in 2022, the CPPE said.

The organisation said “Debt service payment is typically a first line charge in budget releases. The ambitious budget size of N17.1tn and the unpredictable revenue outlook elevates the risk of higher fiscal deficit than projected.

“This has implications for macroeconomic outcomes of high fiscal deficits, a new round of monetisation of the deficit, pressures on the exchange rate and the general price level.”

It predicted that the global price of oil will exceed the budget benchmark of $62 per barrel, offering fiscal headroom and this will boost the foreign reserve of the nation, as well as strengthen the capacity of the CBN to support the foreign exchange market.

It forecasted that the impact of COVID-19 on global and domestic economies would reduce, while the nations would ramp up vaccinations and new measures to contain the pandemic.

The CPPE noted that because the service sector is less vulnerable to the structural constraints of the economy, especially the real sector of the economy, it will continue to outpace the real sector in 2022.

In its words: “The service sector of the Nigerian economy will continue to outpace the real sector in 2022. In the third quarter of 2021, service sector contribution to GDP was 50 per cent and the growth of the sector was 8.41 per cent.

“Oil sector contribution to GDP was 7.5 per cent; while the non-oil sector contribution was 92.5 per cent. while the industrial sector growth contracted by 1.63 per cent, agriculture grew by 1.2 per cent.”

It declared that if the Petroleum Industry Act is implemented in 2022, it would impact positively on the economic outlook, adding that investors would troop into the oil and gas sector on account of the reforms anchored on the PIA.

“This will however depend on the political will deployed to drive the implementation of the provisions of the Act. It is also expected that the coming on stream of the Dangote refinery in 2022 will also impact positively on the downstream sector of the economy,” CPPE concluded.