Amidst underperformance, analysts fear spendings may switch to campaign mode

There are culpable fears that, government may not achieve its broad macroeconomic goals, even as they see a switch gears into campaign mode as elections draw closer.

“With less than 570 days to the 2023 elections, an assessment of the Nigerian government’s scorecard, with respect to achieving its broad macroeconomic goals, reveals under performance amid half-hearted and belated efforts at economic reform.

“While reforms have not been helped by the COVID-induced disruption and delays in implementation, fears are rife that the government may be switching gears firmly into campaign mode as the elections draw ever closer”, Bismarck Rewane, Chief Executive Officer (COO) of Financial Derivatives Company (FDC) Limited has said..

One of Nigeria’s most pressing macroeconomic challenges is sub-optimal output growth and how to raise total factor productivity just after exiting a recession. After many years of positive real returns, the country is now witnessing negative labor and total factor productivity with five-year averages of (-1.32 per cent) and (-1.6 per cent) respectively. This implies a relative contraction in output compared to expansions in total input, including labor.

Nigeria is also confronted with a widening fiscal imbalance as its total debt stock has surged by 72.81 per cent (N33.11 trillion in first quarter if 2021) in the last five years while its debt to export ratio has spiked to 111.6 per cent in 2020 from 57.9 per cent in 2016. 

The negative real rate of return on investment is a major disincentive as inflation (17.38 per cent), while declining, is still higher than interest rates. The CBN is caught between raising interest rates and restoring investor confidence and keeping  rates low to stimulate output. Interest rates rose steadily in the first half of 2021 on tight liquidity before falling marginally. 364-day treasury bill rates are down to 7.35 per cent  in August from 9.64 per cent in June.

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