THE ECONOMY: A MID-YEAR EVALUATION

Growing debt loads, inflationary pressures, a deteriorating foreign currency (FX) crisis, poverty, unemployment, limited foreign direct investments, insecurity, and other issues are among the causes impeding economic recovery. Macroeconomic analysis of the first half of 2020 revealed a real Gross Domestic Product (GDP) growth rate of just 3.11%. According to data from the National Bureau of Statistics, this is in contrast to the government's expected six percent for the time period (NBS). The inflation rate for May was 17.71%, which was the highest in 30 months.

In April, the inflation rate was 16.82 percent. As a result, the Central Bank of Nigeria raised its benchmark interest rate for the first time in six years from 11.5 to 13 percent in May.

According to projections, inflation may increase even more in the second half of the year, worsening the buying power and standard of living of the majority of Nigerians as well as the cost of production. Poverty levels and the unemployment rate grew during the first quarter of 2022. The World Bank research estimates that Nigeria added over six million individuals to its poverty net, raising the total number of people living in poverty to almost 96 million.

This amounts to 49% of the projected 200 million people worldwide. According to figures from the NBS, the jobless rate has increased to above 35%, with young unemployment reaching a new high of over 40%.

Additionally, the naira saw an unheard-of decline versus major international currencies in both official and unofficial markets during the first half of the year under review. The official rate was N415/USD at the end of June, but N615/USD was being traded on the black market. Even worse, the Debt Management Office reports that Nigeria's public debt stock increased by N2.04 trillion to N41.06 trillion in the first quarter of 2022. Additionally, Nigeria's foreign exchange reserves will be $39.15 billion on June 30, 2022, down from $40.52 billion at the end of last year. As a result, the cost of repaying Nigeria's debt rose by 11%, from N429 billion in Q4 2021 to N896.56 billion in Q1 2022.

Domestic debt servicing in Q1 2022 cost N668.69 billion, and overseas debt servicing cost $548.79 million (N227.87 billion), for a total of N896.56 billion. Despite the rise in crude oil prices on the global market, the government continues to borrow more while struggling to pay its loans back due to low income growth. The removal of Nigeria from JP Morgan's list of developing markets is likely the result of this. Nigeria has not been able to benefit from rising oil prices, but Saudi Arabia's Aramco, now valued at $2.4 trillion, has overtaken it as the most valuable state-owned oil business in the world.

The unattractive change is hurting the economy and making recovery challenging. However, despite the gloomy prediction that the economy may see additional slowdown in the second half (H2) of this year as it battles an onslaught of headwinds, we think the government can still get the economy out of its current rut. We implore the administration to implement monetary and fiscal measures that will address the current debt crisis, inflationary pressures, currency scarcity, poverty, unemployment, and insecurity. The national grid often collapsed throughout the first half of the year, which was a sad development for the country's electricity supply. Production costs and food item prices have grown due to a lack of fuel and the high cost of gasoline and diesel.

Instead of the current various FX rates, we think a single Forex market will increase stability, liquidity, and transparency. Government can benefit from Nigeria's trade surplus of N1.2 trillion in the first quarter of 2022 throughout the second half of the year. We also think that encouraging more non-oil production and automating port operations will significantly boost the economy. Additionally, guaranteeing security, maintaining currency liquidity, and improving the business climate will draw more direct foreign investment.

Because the economy cannot sustain another recession, the government should develop measures to save the economy.