2022 Preview: World Bank, CPPE predict inflation rate, forex crises, debt service pressure expected to persist
…BDC operators urge CBN to reconsider forex ban
By Seun Ibiyemi
The World Bank, Centre for the Promotion of Private Enterprise has projected that Nigeria may be among other countries whose inflation rates, foreign exchange market, debt service pressure is expected to persist in 2022.
INFLATION RATE
The bank said the implication is increasing prices of goods which will end up worsening the welfare of Nigerians.
The bank described such inflation rates as the seventh highest among the Sub-Saharan African countries in 2022.
In the Bank’s November edition of its Nigeria Development Update, Punch reports that the bank identified high inflation as frustrating “Nigeria’s economic recovery and eroding the purchasing power of the most vulnerable households.”
The bank added in the report that in the absence of measures to contain inflation, “rising prices will continue to diminish the welfare of Nigerian households.”
According to the report, the adverse effect is that eight million Nigerians would be pushed into poverty.
The report added, “If inflation had been closer to the CBN’s goal of nine per cent in 2021, the average Nigeria’s consumption would have been 15 per cent higher, and eight million Nigerians would have not fallen into poverty.
“If double-digit inflation persists during 2022-2023, rising prices will distort consumption, investment, and saving decisions of the government, households, and firms, with adverse ramifications for long-term borrowing and lending.
“Over time, the disproportionate impact of inflation on lower-income households and those working in sectors with low savings (e.g. agriculture) will exacerbate inequality. Ultimately, inflation will not only negatively affect incomes, but also economic productivity and job creation, further constraining the recovery.”
FOREX CRISES
The Centre for the Promotion of Private Enterprise has stated that the distortions inherent in the foreign exchange market will persist in 2022.
This is according to the Economic Review for 2021 and Agenda for 2022 report of the Centre for the Promotion of Private Enterprise [CPPE] 2022, signed by the centre’s Chief Executive Officer, Dr Muda Yusuf.
The report stated that the challenge of forex to investors in the outgoing year was multidimensional.
According to the report, the FX challenge will be a key issue for investors in 2022. The following are the dimensions of this dilemma:
- The sharp depreciation of the currency depreciation over the last one year.
- The liquidity crisis in the foreign exchange market, which manifests in the acute shortage of foreign exchange in the official window.
iii. Volatility of the exchange rate which creates considerable uncertainty and unpredictability for investors.
The report said, “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 [CRR] on financial intermediation would also persist in 2022 with a dampening effect on the growth outlook.”
The report stated that investors will have to grapple with the barriers to international trade experienced in 2021.
“These are 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 which are unlikely to abate in 2022. Investors would have to grapple with these constraints in 2022,” it said.
DEBT SERVICE PRESSURE
The CPPE stated that debt service pressure is a significant downside risk of investing in Nigeria. The group also appealed to the finance minister to review the recent provisions to Tax Appeal Tribunals.
The report stated that an unpredictable revenue outlook elevates the risk of a higher fiscal deficit than projected, maintaining that the debt service pressures would be seen in 2022 and beyond.
The report said, “The pressure of debt service on government finances will persist in 2022 and beyond. Total public debt as of 30th September 2021 was N38 trillion or $92.6 billion, according to the Debt Management office. The 2022 Budget provided for the sum of 3.88 trillion Naira as debt service. This is a substantial amount when compared with the capital budget provision of N5.46 trillion.”
The report added that “Debt service payment is typically the first-line charge in budget releases. The ambitious budget size of 17.1 trillion Naira and the unpredictable revenue outlook elevate the risk of a 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.”
CPPE also appealed to Nigeria’s fiscal policies measures particularly the recent provisions to Tax Appeal Tribunals rules.
The report said, “The CPPE would like to appeal to the finance minister to review the recent provisions to Tax Appeal Tribunal rules compelling those who have tax disputes to pay 50% of the amount in dispute before their appeal can be heard. We submit that this is contrary to the principle of natural justice, it constitutes an obstruction to a fair hearing. We, therefore, call on the finance minister to review this policy urgently.
“Besides, the rule is in conflict with the FIRS Establishment Act that set up the tribunal. We, therefore, request that this rule be expunged from the proceedings of the tax appeal tribunals in the interest of fair hearing,” the report added.
BDC OPERATORS URGE CBN TO RECONSIDER FOREX BAN
The Association of Bureaux De Change Operators of Nigeria (ABCON), has urged the CBN to reconsider the ban to allow BDC operators receive diaspora remittances in 2022.
In a statement released at the weekend signed by ABCON President, Alhaji (Dr) Aminu Gwadabe.
According to Gwadabe, the BDC industry’s yearly transaction volume of over N1 trillion is in jeopardy, while enormous capital investment in the sector is becoming obsolete, eroding, and winding down.
Gwadabe suggested that, just as the CBN de-risked the agricultural sector, making it easier for farmers to get single-digit loans from banks, the CBN could also de-risk the BDCs operations, allowing them to receive diaspora remittances through International Money Supply Operators (IMTOs) and deepen foreign capital flows to the economy.
The ABCON, according to Gwadabe, recognizes the CBN’s difficulties in maintaining weekly dollar interventions to BDCs due to falling foreign reserves, declining oil output, and oil theft, COVID-19 induced economic hardships, fiscal policy concerns, debt burden, and election spending.
“We support any measures that would lead to compliance with the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT), supporting CBN’s exchange rate stability policies and security agencies to punish any BDC operator breaching corporate governance and compliance guidelines.
“It is our sincere belief that the BDCs need to be integrated back officially to ensure their continuous potent role in exchange rate stability management,” Gwadabe said.
He stated that ABCON is now training Compliance Officers to ensure that they are aware of what is expected of them, particularly in terms of monthly rendition of results and tracking illicit financial flows.
ABCON, according to Gwadabe, has established itself as a vital participant in the BDC business throughout the years and has made various promises and sacrifices to ensure that the sector thrives despite all difficulties.
“The recognition of the role of BDCs in Nigeria’s financial sector remains the first step to building a sustainable and viable forex market that is comparable to what is obtainable in other developed economies. But getting the Nigerian BDC sector to where it is desired to be demands hard work, quality leadership, regulatory foresight and sound government policies,” he said.
