As the Federal Government moves to re- move subsidy on petroleum later any time soon, there are indications that the action could further spell doom for the economy beyond the expectations of experts.
This much was revealed by KPMG, a global network of professional firms providing audit, tax and advisory services, in its latest Global Economic Outlook. According to the agency, the expected removal of subsidy on Premium Mo- tor Spirit (PMS) popularly called petrol, would keep pressure on domestic prices in 2023. It noted that Nigeria’s unemployment rate would rise further to 40.6 per cent in 2023 and remain a major challenge due to limited investment by the private sector, low industrialisation, slower than required economic growth and consequently the inability of the economy to absorb the 4‐5 million new entrants into the Nigerian job market every year. “Although lagged, the National Bureau of Statistics recorded an increase in the national unemployment rate from 23.1 per cent in 2018 to 33.3 per cent in 2020.
“We estimate that this rate has increased to 37.7 per cent in 2022 and will rise further to 40.6 per cent in 2023,” KPMG stated. It explained that the removal would impact domestic prices in 2023 as it is believed that the Federal Government plans to re- move subsidies as early as the second quarter of the year. While noting that inflation in Nigeria has been driven by persistent structural issues, which impacted domestic food production and transportation, the global agency said: “These issues include insecurity, floods in key agricultural producing areas and rising international food and energy prices following the Russia-Ukraine conflict as well as other policy-related bottlenecks that continue to impact the cost of doing business.
“Additionally, the expected fuel subsidy removal and the 2023 Fiscal Bill are expected to keep pressure on domestic prices in 2023.” The agency further predicted that the incoming administration would face a deeply rooted challenging environment, characterised by fragile and slow economic growth and challenges in the foreign exchange market. It noted that government revenue would remain inadequate to support the much-needed expenditures, leading to a high debt stock and high debt service payments, adding that oil output (including condensates) declined from 2.07 million barrels per day in Q1’20 to 1.34 by Q4’22. While acknowledging that growth in 2022 was driven by the non-oil sec- tor, as continuous recovery in household consumption boosted spending, particularly in the finance and insurance services, telecommunications, and transportation and storage services, it revealed that while the non-oil sector grew by 4.84 per cent, the oil sec- tor contracted by 19.22 per cent, largely attributed to worsening oil theft, pipeline vandalization, underinvestment, and other operational challenges inhibiting oil production.
“Accordingly, oil output (including condensates) declined from 2.07 million barrels per day in Q1 2020 to 1.34 by Q4 2022.” The analysts said Nige- ria’s gross domestic prod- uct (GDP) would continue to grow at a relatively slow pace of three per cent in 2023 due to the slowdown in economic activity that typically characterises periods of political transition in the country. It also said that the spill over from an expected slow- down in the global economy in 2023 and its trade and financial flows implications were expected to drag on GDP. According to KPMG, growth will be negatively affected by the naira redesign policy introduced in Q4’22 and Q1’23, adding that its implications on key non-oil sectors like manufacturing, trade, accommodation and food services, transportation and other services would further slow overall GDP growth in 2023.
