The Centre for the Study of the Economies of Africa (CSEA) an independent non-profit research organization in Abuja has released its Nigeria Economic Update Issue 4 for the year 2022.
The edition highlights the Monetary Policy Committee Retainment, a 13% Growth of Monetary Supply in December 2021 and Nigeria’s Forecast Growth rate by the IMF at 2.7%.
It reports that the Monetary Policy Committee of the Central Bank of Nigeria (CBN) retained the Monetary Policy Rate (MPR) at 11.5 percent, as well as all other monetary parameters, at the first meeting of the Central Bank of Nigeria (CBN) for 2022, held on the 24th and 25th of January.
Specifically, the Cash Reserve Ratio (CRR) was retained at 27.5 percent, the Liquidity Ratio was retained at 30 percent, and the asymmetric corridor of +100/-700 basis points around the MPR was also retained. The decision to retain all the parameters was aimed at supporting the existing economic growth recovery and curbing the increase in prices.
However, inflation persistence in the country has continued to emanate from supply-side constraints which monetary policy may be unable to mitigate. It therefore becomes necessary for the government to leverage fiscal policy in order to improve the ease of doing business and boost aggregate supply.
Unconventional monetary policies should also be scaled up to enhance productivity in both the agricultural and manufacturing sectors. This in turn would ease the pressure on the exchange rate, which would further dampen price levels.
The issue also contains the CBN report of the broad money supply which increased by 13.8 percent in December 2021. The increase was reported to be driven by the growth in net domestic assets (NDA), which grew by 15.58 percent in December 2021, whereas net foreign assets (NFA), the second component of broad money supply, grew by 6.06 percent.
The growth in NDA was essentially credited to an increase in claims on the federal government and the private sector. The rise in NFA and NDA indicates an increase in economic activity. However, the rise in inflation rate in December 2021 may be partly due to the increase in broad money due to lag effects and bottlenecks associated with the increase in supply.
It therefore becomes necessary that the CBN interventions targeted to boost output be monitored to ensure that all beneficiaries of the bank’s real sector facilities utilize the funds as intended.
Also, in the January 2022 edition of the World Economic Outlook (WEO), the International Monetary Fund (IMF) projects a growth rate of 2.7 percent for the Nigerian economy in 2022.
The new growth projection is 0.1 percentage point higher than the 2.6 percent projected in October 2021. Also, the IMF raised the 2023 economic growth projection to a 2.7 percent growth rate from 2.3 percent projected in October 2021.
Similarly, the IMF raised its growth forecast for Sub-Saharan Africa to 3.7 percent and 4.0 percent for 2022 and 2023, respectively, from 3.6 percent and 3.9 percent in the October 2021 report. The upward revision in the growth rate for Nigeria could be attributed to the positive impact of government policies in supporting firms to mitigate the effects of the pandemic on their businesses.
Despite the upward revision of the IMF projection, the projection is 1.5 percentage point lower than the 4.2 percent projected by the Federal Government in the 2022 budget. This suggests that the government needs to be more proactive in implementing business-friendly policies. As a result, there is a need for the government to sustain and expand existing interventions offered to businesses, especially small and medium-scale businesses.
Also, there is a need for the government to effectively implement the medium-term development plan, 2021–2025, to achieve the projected growth rate. Given the role ascribed to the private sector in the plan, initiatives and reforms that would stimulate private sector participation in the economy are crucial. Hence, there is a need for the government to prioritize reforms that would significantly improve the ease of doing business.
CSEA Africa said that these reforms would be instrumental in promoting private sector participation in the economy.
