Forecast 46.3% decline in domestic debt

By Elizabeth Adegbesan

Amidst public concerns over rising debt burden, analysts have indicated that the finances of the Federal Government would remain under pressure in 2022.

But they said that though the government borrowings and deficits are expected to widen next year, it will come with a 46.3 per cent decline in domestic debt from 56.7 percent in 2021.

Speaking on domestic macroeconomic environment in 2021 and outlook for 2022, Investment Strategy Analyst, Afrinvest, Temitope Omosuyi said: “Nigeria’s Gross Domestic Product (GDP) growth would exceed population growth for the first time since 2016 (-1.62 per cent, excluding the pandemic base effect growth induced in 2021.”

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He noted that government spending rose 38.6    per cent compared with a 7.5 per cent increase in revenue in H1’21 on a year-on-year basis, despite the improvement in the oil market saying, “The outlook is not looking any better as exchange rate risk among other factors weighs on revenue.”

Presenting the microeconomic outlook for 2022, Omosuyi said: “Disinflationary trend to continue in 2022 but inflation would still bite harder.

“Capital importation could worsen as Foreign Portfolio Investment (FPI) and other sources of inflow dry up.

“Exchange rate uncertainty will persist amidst less impressive net inflows into the foreign reserves. Tightening of monetary policy may be necessary to support the naira per dollar.”

Similarly, Investment Risk Analyst, Afrinvest, Babajide Atolagbe,    said that likely factors that could drive prices in 2022 are Premium Motor Spirit (PMS) subsidy removal, increased electricity tariff among other things.

He said: “Likely factors that could drive prices in 2022 are PMS subsidy removal, which is the most consequential known factor that could push inflation to its worst case estimates in 2022.

“An increase in electricity tariff would be more evident in urban inflation due to the suboptimal access to electricity;

“Exchange rate, insecurity and supply chain constraints are existential pressure points which are expected to linger in 2022.”

Presenting the foreign exchange (FX) market outlook for 2022, Atolagbe said that the parallel market window rate correction to near the Investors and Exporters window rate is not unlikely adding that wide predictive margins reveal high level of uncertainty.

He noted that the Market clearing rate for the I&E window for next year would rise from N438 to 494 per dollar and that of the parallel market would rise from N570 to N619 per dollar in 2022.

He said: “What could provide support for the I&E window is improved foreign reserves through external borrowing and export earnings; rise in policy rate to support foreign reserves and in turn exchange rate.”

However, he added: “What could go wrong with the parallel market rates at N570 to N619 per dollar are increase in currency outside bank; depressed oil output amidst OPEC cap and bearish Brent oil cap prices; rigid monetary policy reaction to policy normalization could heighten risk; and higher taxes will take the center stage as FG explores all options to cover ballooning budget deficit.”