Year 2020 will never be forgotten in a hurry, especially with the several issues witnessed as it rolls off. BLESSING ANARO writes on hopes and aspirations for 2021 by analysts and economists.
Many economists and analysts who still have little breathe left, cannot wait for the year 2020 to roll by quickly. Others, still gasping for breath can only hope 2021 will be better.
But, at the same time, others remain very skeptical of coming year 2021. For them, just like Don Corleone said in the movie Godfather, “I am a superstitious man and I do not like bad omens”
Bismarck Rewane, Chief Executive Officer of Financial Derivatives (FDC) Limited, probably thinks so. He said, “2020 a leap year is now drawing to a close and yet I have received only 5 Christmas cards as against 100 that I got at this time of 2019. That is not all, I have received only two thin and weightless hampers compared to the 20 bountiful and hefty hampers I got in 2019. I said to myself gee whiz, last year I attended no less than eight end of year parties from the Eko Convention Centre to the Landmark Auditorium in December, but this year none.
“To make the end of year celebrations super fascinating, I had been to the airport numerous times to receive visiting friends and relatives from the U.S., Canada and Dubai. This year, I have not welcomed any relative, friend or associate from abroad. What a difference 12 months can make”.
Comparing the two periods, he recalled that the Nigerian economy was firing on all cylinders, chalking up a growth rate of 2.55 per cent in the fourth quarter of 2019. The Naira was trading at N362/$ in the elusive parallel market and a bag of rice was selling at N18,000 per bag in August. The retail price of onions was N17,000 per bag and a ticket from Lagos to Abuja was N28,000.00.
“Today it is a totally different picture. Rice is now N30,000.00, onions is N75,000.00 and a bag of flour is now N14,500.00. These anecdotal proxies tell you why food inflation is at a staggering 18.3 per cent as against 14.67 per cent in 2019. It also helps you understand the dramatically changing macro-economic picture and the challenges of an economy in stagflation with declining incomes and a negative balance of trade”, he mused.
But the good news is that, “the worst is now over and the long arduous journey of a slow and difficult economic recovery has commenced”, he said in a Breakfast at dinner time held virtually.
Expectations in 2021
The Economic Intelligence Unit (EIU) is not sure there will be any positive growth until the third quarter of 2021. According to analysts at EIU, negative growth will linger through the first and second quarters of next year.
It said, though there might not be positive growth in the first two quarters, the rate of economic contraction will slow during the period.
The EIU, however said, expected growth in the third quarter will be fueled by the land order re opening, AfCFTA which will lead to a pick up in economic activities. It estimates that growth in 2021 will be 1.1 per cent.
The double inflation rate is expected to continue next year, with the EIU estimating the average inflation to be 16 per cent, against the average of 12,98 per cent in 2020.
Other factors that will lay siege for inflation include the hike in electricity tariff and exchange rate adjustment. With fuel market now deregulated, little or no respite is expected from increase in petrol also. Capacity constraints of local producers also ensure little progress in refining at home.
The impact of the Central Bank of Nigeria (CBN) Special Bills is expected to be more potent early next year, slowing growth in M2. The EIU estimates that M2 will slow down to 16.6 per cent in 2021 from 25 per cent in 2020.
FDCThink Tank opined that with Nigeria already in a liquidity trap, the CBN will have no choice but to raise interest rates in 2021, as the apex bank will prioritizes price stability over economic recovery. FDC said, the timing of an interest rate increase will be a function of money supply growth, FG overdraft, galloping inflation and exchange rate pressures.
Analysts from both the EIU and FDC believe currency pressures will slow temporarily in first quarter of 2021 on World Bank loan disbursement and possible increase in diaspora remittances
FDC is afraid that pressures are expected to resurface on increased capital outflows, heightened foreign exchange (forex) demand and dollar dearth, driven by weak macroeconomic fundamentals. “Another currency adjustment likely in 2021 and
IEFX rate will oscillate between N440- N450/$”, said Rewane.
Analysts say, economy will remain vulnerable to external imbalances as external debt versus external reserves ratio expected to widen. Even at that, debt service to remain at the front row of government budget (2021-2023). Fiscal deficit to stay above three per cent.
Likely policy adjustments in 2021
The CBN is likely to shift focus back to price stability in 2021
As multiple objectives will undermine monetary policy effectiveness, a change in interest rate policy likely
The introduction of special bills will serve as an additional tool for liquidity management
Signalling an increase in interest rates
The Federal Government (FG) confronted with wider fiscal deficit (N5.19 trillion) amid lower revenues Will attempt to spend its way out of the recession, said Rewane. This, he said, will significantly boost domestic revenue mobilization.
Options before it are limited. The include broadening the excise base, increasing rates for excises (e.g. fuel).
Others include increasing the Value Added Tax (VAT) rate gradually to the ECOWAS average of 15 per cent by 2025.
Change in low interest rate environment will increase debt servicing costs
The new Petroleum Industry Bill (PIB) that will be passed, will make a return to petrol price controls less likely. The PIB will encourage upstream oil investment by bringing clarity to fiscal terms.
