Business
2023 ‘ll be testing period for stability of currency regime, says expert
Experts at the Economist Intelligence Unit (EIU), the research and analysis division of the Economist Group have said that early 2023 is set to be a testing period for stability of the currency regime.
In a report it titled: “Things to Watch in Nigeria in 2023”, the organisation stressed that with foreign exchange scarcity on the parallel market and bureau de change operators preferring to hold rather than sell, the black-market exchange rate, it said, has been extremely volatile, depreciating to more than N800/$1 in early November, before recovering to N750/$1 in mid-month and sliding back to N780/$1 a week later.
“The currency redesign will continue to be a source of pressure on the naira until January, when existing banknotes lose their status as legal tender, and the election in February could also unleash speculative forces.
According to the group, the value of Nigeria’s currency will continue to depreciate, gradually falling to an official rate of N470 to $1 by the end of 2023.
“A devaluation cannot be ruled out, but as these events pass currency pressures should ease. We now expect the naira to end 2023 at about N470/$1, from N444/$1 currently, with the movement being one of gradual depreciation.
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“Inflation is expected to remain in double digits and monetary conditions will be tight, with the central bank’s policy rate expected to peak at 17 per cent by end-2022 or early 2023, and to be maintained at this level throughout the year,” it stressed.
“Interest rate rises should begin to tame inflation, but economic growth will slow. High global energy demand should make Nigerian oil assets more attractive, and a recent oil sector law will be tested with respect to governance of the industry,” it said.
The run-up to the 2023 election, it explained, has prevented the government from committing fully to reforms it had been endorsing during the middle of Muhammadu Buhari’s second term.
One of these reforms, it noted, is ending petrol subsidies, the bill for which has caused the fiscal deficit to balloon in 2022. “We estimate a shortfall of 5.1 per cent of GDP, the largest for a generation.
The report pointed out that a key potential new reform to watch out for in the power sector is the likely unbundling of the currently centralised electricity transmission infrastructure, which it said has been the cause of repeated national power shutdowns for most of 2022.
In oil and gas, the EIU said there are already warnings that the oil and gas business environment will remain excessively dominated by Nigerian National Petroleum Company Limited (NNPC).