- The third quarter (Q3) of 2024 sees analysts, economists and stakeholders in various sectors making projections that will shape the Nigerian economy
- Among the projections are relative naira stability despite its slide in the FX market and a slowdown in the inflation rate
- Also, there are expectations of fuel price hike and continued government borrowing to finance critical projects
Among the projections are the relative stability of the naira even as it has sustained downward trading, expected hike in the price of Premium Motor Spirit (PMS) and continued borrowing by the government to finance projects.
On the free fall of the naira, which saw it end the first half (H1) of the year as the worst-performing currency, analysts predict stability to hover between N1,423.26/$ and N1,500/$ in Q3 2024.
The prediction is anchored on the recent foreign exchange (FX) liquidity in the market as a result of FX sales to Bureaux De Change (BDC) operators by the Central Bank of Nigeria (CBN) to the tune of $106 million and increased diaspora remittances following CBN policies.
According to analysts at Stears, the convergence at the official and parallel FX windows witnessed in late May and early June indicates lower arbitrage and speculative activities in the FX market and bodes well for Nigeria.
They said, “The spread between the official and parallel rates, which stood at 29.06 per cent on May 28, just before President Tinubu marked one year in office, significantly narrowed to 1.31 per cent by May 30. This swift convergence highlights the expectation of lower arbitrage and speculative activities in the forex market. This bodes well for Nigeria’s attempts to attract investors in the near term.
“We forecast the naira to trade at N1,423.26/$ by the end of Q3 2024, 6.10 per cent up from the N1.510.10/$ in Q2 2024. This appreciation is premised on the increase in dollar inflows, evidenced by the sustained uptick in reserves that will support the CBN’s ability to defend the naira.
“The forecasts also consider the temporary but favourable implication of the World Bank’s $750 million disbursement on reserves and forex supply.”
In its Half-Year Economic Outlook titled, ‘Balancing Act: Nigeria’s Path to Economic Stability,’ United Capital said the naira will remain weak for the rest of the year owing to hoarding, speculation and lack of confidence, requiring the CBN to continue its intervention in the FX market.
It said, “The CBN will continue to intervene in the FX market; nevertheless, due to lack of confidence, hoarding and speculation, the naira will remain weak for the remaining part of the year. Notably, due to CBN’s efforts at increasing FX inflows into the economy, curbing speculation and hoarding activities, we expect the naira to moderate at N1,500/$ in H2-2024.
“Foreign reserves will hover around $34 billion+ for the remaining months of the year. However, due to the continuous defence of the naira by the CBN, foreign reserves may remain at current levels with the possibility of improving slightly as the government’s efforts to attract foreign inflows materialise.”
Headline inflation to slowdown by year-end
On inflation, analysts predict a slowdown in the rate given recent interventions by the government like the 150-day import duty suspension on staple foods as well as dispatched 740 rice trucks to states at 20 trucks for each of the 36 states and the Federal Capital Territory, Abuja, aimed at reducing the prices of staple food.
Recall that Nigeria’s core inflation and food inflation rate have been surging, reaching a new 28-year high of 34.19 per cent and 40.47 per cent, respectively, in June 2024, despite CBN’s monetary tightening stance to rein in inflation by upwardly reviewing interest rates
United Capital estimates headline inflation to settle at 27.5 per cent by December 2024, higher than CBN’s 21.4 per cent target “assuming no significant shocks to domestic prices. We anticipate that prices may moderate in Q3 2024 due to the unwinding of statistical base effects and the primary harvest season in late Q3 24 and early Q4 24. However, risks to consumer prices remain on the upside, including potential below-average harvests, minimum wage increases and FX volatility.”
The Nigerian Economic Summit Group (NESG) expects inflation to remain elevated “with a likely slowdown in the near term due to the base effect, the discontinuation of the Central Bank of Nigeria’s price verification system and the 150-day suspension of import duties on staple foods.
“However, the upside risks will likely prevail if infrastructural deficits, insecurity, low agricultural production, high input costs and rising energy costs are not proactively addressed.”
Fuel price hike imminent
Nigeria’s oil and gas sector is expected to witness significant challenges in the coming months, according to stakeholders in the sector.
These challenges, they say, are expected to cause a hike in the price of PMS in Q3 2024 by up to 300 per cent year-on-year in some states.
According to a 2024 Third Quarter Outlook for Nigeria’s Energy Sector (July and September 2024) report by the Society of Energy Editors (SEE), the projection is premised on Nigeria’s continued reliance on fuel imports, underperforming domestic refineries, delays in the full operationalisation of new refineries, increasing domestic demand for fuel, the strain on government finances due to payment of petroleum subsidies and continued depreciation of the naira.
The report noted that, “The sector is expected to experience growth and development but also faces significant challenges that need to be addressed to ensure sustainable progress.
“Ongoing efforts to revamp existing fields to boost output; management of the 2024 marginal fields bid round by the Nigeria Upstream Petroleum Regulatory Commission (NUPRC) to impact investors’ confidence.
“Security issues in the Niger Delta, ongoing divestments by oil majors, lack of investments and decaying infrastructure remain major concerns.
“Fuel imports will remain high, putting pressure on foreign exchange reserves. Petroleum subsidy to remain a significant burden on government finances.
“With fuel sold at different prices across the country in line with subsidy removal, price hike could hit 300 per cent in some states compared to the same time in 2023.”
Expect continued government borrowing
With concerns over increasing government borrowing to finance projects, analysts project that the trend will continue, especially in light of deficit in the 2024 budget.
Already, the House of Representatives, on July 23, passed the supplementary bill that seeks to increase the 2024 appropriation Act by an additional N6.2 trillion from an initial N28.7 trillion to N35.055 trillion.
The extra-budgetary proposal by President Bola Tinubu has N1.7 trillion earmarked for statutory transfers, N8.27 trillion for debt service, N11.2 trillion for recurrent expenditure while N13.77 trillion is a contribution to the Development Fund for capital expenditure for the year ending December 31, 2024.
Although there are concerns over debt sustainability, loan repayment and its overall impact on the economy, analysts say borrowing is likely the only option for Nigeria in Q3 2024, with the majority of it being from domestic sources.
United Capital said, “Government will continue to borrow to finance its 2024 budget. This is because government’s revenues are low and the 2024 budget can only be financed through borrowings. Meanwhile, the government plans a supplementary budget of N7.24 trillion to finance the budget. Local borrowings will constitute a major portion of government’s debts.”
Also, the N18 trillion revenue projection in the 2024 budget by the Federal Government doesn’t excite economists, especially with challenges in oil output and debt service.
Dr Muda Yusuf, Chief Executive Officer of the Centre for Promotion of Private Enterprises, at a recent webinar on Q3 macroeconomic outlook organised by Nairametrics, said,
“It is not looking a bit optimistic given what is happening to our oil output and given the fact that we are now having challenges with our debt.
“Our debt is growing at a level that is making some of us very uncomfortable particularly from the point of view of debt service. Our debt-to-GDP ratio, which used to be used to be around 20 to 23 to 25 is now close to 50 per cent and that of course has implication for debt service to revenue. I would expect to get an implication for public finance. I think it is something that we should worry about.”
Bitter-sweet: Nigeria’s diaspora remittances have been on the increase and so is her debt profile
Meanwhile, TheRadar had reported that Nigeria’s diaspora remittances increased by $172 million, representing 90 per cent from $193.31 million in April to $365.44 million in May 2024, according to the CBN.
However, the country’s debt profile was rising, raising questions about debt sustainability and the cost of servicing debts.
