The Center for the Promotion of Private Enterprise, an economic think tank, said the federal government’s “monetary and exchange rate rigidities” could disrupt the nation’s economic growth in 2022.
The Central Bank of Nigeria is responsible for the country’s monetary and exchange rate policy.
The center made it known in its report “Economic Outlook 2022”, a copy of which was obtained by our correspondent Thursday.
According to the organization, there is no indication that the country will move away from its current monetary and exchange rate policy, which could hamper economic growth in 2022.
The center said: “Rigidities in monetary and exchange rate policies may also pose a risk to the growth outlook, as there is no indication of a significant change in the stance of monetary and exchange rate policies at short term.
“Therefore, the inherent distortions 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 prospects.”
According to the private sector body, while the economic outlook for the Nigerian economy in 2022 is broadly positive with gross domestic product growth remaining at a fragile 3%, the problem of insecurity will have a significant impact on the economy. economy.
He added that the agricultural sector in particular would be affected as the perception of Nigeria as an investment destination continues to decline.
He said investors should tackle international trade barriers faced in the country in 2021.
The economic think tank said problems with Lagos ports, traffic jams, port congestion, bureaucratic documentation processes, extortion and prohibitive terminal operator and shipping company fees could continue into 2022. .
The CPPE said: “There will be intense electoral activity in 2022, in preparation for the 2023 elections. This will cause serious distractions for political office holders at all levels as they struggle to retain power during the elections.
“This will have a negative impact on the economy and the investment environment, as considerable attention and resources are devoted to electoral activities in 2022. Aggressive revenue seeking by government agencies will put enormous pressure on investors. in 2022.
“Beyond the usual tax authorities, other government agencies can become more aggressive in their revenue campaign. This will be an additional burden for investors in 2022. ”
According to the organization, the federal government is unlikely to completely remove oil subsidies in 2022 due to the 2023 election.
As a result, he said that the economy would have to bear the heavy tax burden of this policy and that the full implementation of PIA as well as downstream sector reform would be affected.
He said, however, that the proposed Dangote refinery could reduce some tax burden in 2022 if brought online.
The CPPE said the government will continue to spend a large portion of its revenue servicing debt in 2022.
He said: “Paying debt service is usually a front line charge in budget publications. The ambitious budget size of N17.1 billion and the unpredictable revenue outlook increases the risk of a larger-than-expected budget deficit.
“This has implications for the macroeconomic performance of high budget deficits, a new round of deficit monetization, pressures on the exchange rate and the general price level.”
According to the private sector body, the world price of oil will exceed the budget benchmark by $ 62 per barrel, providing fiscal space.
This, he said, would increase the nation’s foreign exchange reserves and strengthen the ability of the CBN to support the foreign exchange market.
He added that the impact of COVID-19 on global and national economies would diminish, predicting that countries would increase vaccinations and new measures to contain the pandemic.
According to the CPPE, because the service sector is less vulnerable to the structural constraints of the economy, in particular the real sector of the economy, it will continue to overtake the real sector in 2022.
He said: “The service sector of the Nigerian economy will continue to overtake the real sector in 2022. In the third quarter of 2021, the contribution of the service sector to GDP was 50% and the growth of the sector was 8, 41%.
“The contribution of the oil sector to the GDP was 7.5%; while the contribution of the non-oil sector was 92.5 percent. while the growth of the industrial sector contracted by 1.63 percent, agriculture increased by 1.2 percent.
He added that if the oil industry law was implemented in 2022, it would have a positive impact on the economic outlook, noting that investors would be moving to the oil and gas sector due to the reforms anchored on the PIA.
“However, this will depend on the political will deployed to lead the implementation of the provisions of the law. It is also expected that the commissioning of the Dangote refinery in 2022 will also have a positive impact on the downstream sector of the economy, ”noted the CPPE.
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