With spiking inflation rate, a fallout of fuel subsidy removal and naira float policy, finance experts have tasked President Bola Ahmed Tinubu, to urgently unveil interventions measure to ameliorate the worsening economic austerity.
The lifelines, they note, should be a mix of direct interventions, tax incentives for low-income employees and small businesses, reduction in import duty on some critical intermediate products for key sectors of the economy, import duty concessions for the transportation, health, power, and energy sectors.
The Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, gave the advice in the half year economic review released by the organization.
He said the Tinubu administration needs to promptly deploy measures to mitigate the current headwinds inflicted by the current reforms, even as he envisaged that the improved fiscal space created by the reforms should make the mitigating measures feasible and give the administration a human face.
Yusuf emphasized that the Nigerian economy was impacted by diverse global and domestic variables in the first half of the year.
“Major global factors were the Russian Ukraine war which continues to exacerbate energy costs and fueling inflation globally; the persistent monetary tightening in the advanced economies aimed at curbing a rather protracted inflationary pressure; and the worsening geopolitical tension triggered by the war in Ukraine.
“On the domestic front, the major headwinds to growth were the naira redesign policy of the Central Bank, persistent dysfunctional foreign exchange policy, the political transition processes, weak recovery of oil production and the intractable challenge of insecurity in parts of the country.
“The GDP growth remained weak and fragile as it slowed to 2.31per cent in the first quarter of 2023, from 3.5 per cent in the fourth quarter of 2022. Key sectors that contracted included agriculture, which contracted by 0.9per cent, the first time in about a decade. The livestock sub-sector was the worst hit as it contracted by a staggering 30.6 per cent. Other sectors that contracted include oil refining which contracted by 35.8per cent; textiles, 3.7 per cent; rail transportation, 49percent; and Insurance, 8per cent.
“Sectors that posted positive growth numbers were manufacturing, which grew by a marginal 1.6per cent; food and beverage, 3.9per cent; chemical and pharmaceutical, 6.2per cent; vehicle assembly, 5.4per cent; road transport, 8per cent; ICT, 11per cent; financial institutions, 25per cent; and real estate, 1.7per cent”, he explained.
The CPPE DG added that there are clear indications of elevated investors’ confidence, improvement in the government fiscal space, higher prospects of exchange rate stability in the near term, and positive expectations of better economic governance. The short to medium-term outlook for forex liquidity is very good and the prospects of increased inflow of capital is very bright.
“However, there is an urgent need to address the social outcomes of the recent reforms, especially the inflationary pressure induced by the fuel subsidy removal. Urgent measures need to be put in place to mitigate the soaring cost of living and the escalating operating and production costs, especially for businesses.
“Inflationary pressures may intensify in the near term; the exchange rate may come under pressure in the short term as forex demand backlog exerts pressure on the official forex window. But the pressure is expected to ease before the end of the year. This would pave way for an equilibrium exchange rate which would be more tolerable and sustainable. Meanwhile the CBN should put in place a sustainable intervention framework to moderate the volatility in the forex market.
“With a better fiscal space, the outlook for lower fiscal deficit, moderation in the growth of public debt, reduction in debt service burden, and an improvement in macroeconomic stability are very positive. All of these would impact economic growth prospects in the second half of the year”, he added.
