Economist and financial experts have highlighted several disturbing trends that may hinder the growth of Nigeria’s economy in 2020.
Speaking at a seminar in Lagos, financial expert, Wale Okunrinboye, Head, Investment Research, Sigma Pensions Limited, stated that while the early budget passage is a good way to start, the big task ahead now lies with meeting the revenue targets in 2020.
He disclosed that although Oil price rallied in 2019 due to dipper than expected cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allied partners, the exit of Russia from the current agreement in halfyear 2020 and the end of Saudi’s inventory replenishment will drive oil price towards the USD55-60bbl/range which is not good for Nigeria.
While commenting on inflation, Wale disclosed that the country’s inflation rate is expected to witness an uptick trend in 2020. According to him, several factors that will trigger inflation in 2020 include VAT increment, excise and stamp duties and fall-out from the ongoing border closures.
According to Wale, “in the absence of any restriction on import demand, FX reserve is expected to drop towards USD33 billion from 2019 year-end levels (USD38.5 billion). Also, large foreign holdings of the CBN bills (USD16 billion) portend sizable risks in the event of unfavourable change in global sentiment.”
Wale also stated that the CBN’s drive to support growth and fix its balance sheet issues implies that it will tolerate low interest rate for local investors for a long time which will weight on T-bill yields.
Speaking on naira devaluation, Cheta Nwanze, Head of Research, SBM Intelligence, disclosed that the CBN is most likely to devalue naira in 2020.
According to Cheta, keeping the exchange rate stable in 2019 came at a cost, with depletion of the reserves which led the CBN Governor to state the triggers for devaluation – reserves at $25 billion – $30 billion and oil prices at $50 – $45.
Speaking further, Cheta said, “OMO bubble is expected to burst and much of the hot money propping up the Naira to take flight. In the absence of positive macroeconomic news, FDIs will keep away while FPIs will only take short term positions and the net FX inflows will oscillate.
“The Federal Government’s revenue position is alarmingly untenable, and with the modest increase in the National Minimum Wage still yet to take effect, the CBN simply cannot continue to defend the Naira at current levels. We expect the government to be forced into the hard choice of devaluing the currency sometime within the first half of 2020.“