Nigeria’s economy is expected to face a challenging 18-month recovery period, a new report by CFG Advisory, a financial services firm, has said.
The report titled ‘Macro Outlook 2024: The Path from Stagflation to Growth’ projects a period of high-interest rates, limited access to foreign exchange, and reliance on the parallel market.
“Nigerians in 2024 should be prepared to endure an 18-month economic recovery period. This will be accompanied by a high-interest rate regime to tame inflation, continued scarcity of FX in the Nigerian Foreign Exchange Market, and succour from the parallel market,” the report said.
It added that corporations and investors should be prepared for a high-interest rate regime, scarce FX and 18 months of economic recovery.
“Hedge to preserve value by moving excess liquidity and profits into value-retaining assets,” the report said.
According to the firm, the economy is sound, but poor economic leadership has failed to realise potential and grow the economy. The growth is hinged on the success of the reform policies.
“The success or failure of our business projections and the economy will depend on their commitment and sincerity to implement and deliver on their reform policies. The goal is to drive our economy out of stagflation and attain sustainable GDP growth targets,” it said.
President Bola Tinubu, who took the helm of Africa’s most populous nation in May last year, stoked foreign investors’ interest with some of his actions, including the removal of petrol subsidy and the start of foreign exchange reforms.
In June, the Central Bank of Nigeria merged all segments of the FX market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.
But these reforms have worsened inflation, which is double-digit and highest in 18 years. The rising inflationary pressures have weakened the purchasing power of consumers, even as businesses grapple with higher operating costs.
“The ongoing reforms of the new administration to navigate the path from stagflation to growth is now in the implementation phase with the passage of the budget,” the CFG report said.
It added that the main thrust of the reforms is a revenue drive focused on restoring oil production to 2mbpd, reforming the tax regime and increasing internally generated revenue.
On January 1, Tinubu signed the N28.7 trillion Federal Government budget after lawmakers raised the budget by N1.2 trillion to N28.77 trillion from the earlier proposed N27.5 trillion by the executive.
The CFG report’s authors noted that the policies’ success will depend on the government’s commitment to checking excessive fiscal spending, particularly the unauthorised ways and means of financing now at N30 trillion.
“The unchecked fiscal expenditure and the unauthorised ways and means of financing, now over thirty times the limit at N30 trillion, remain a key risk to Nigeria’s economic recovery from stagflation to sustained growth in 2024.
“The last eight years have involved significant deficit financing, resorting to excessive N30 trillion ways and means financing. FGN is now in violation of Section 38 of The CBN Act and deficit limits of five per cent of GDP of the Fiscal Responsibility Act. Nigeria has to take a cue from Ghana, Zambia and Ethiopia to avoid default,” they added.
The report recommends that addressing stagflation and achieving sustainable growth in Nigeria require a comprehensive and coordinated effort from the government, the private sector, and the international community.
“It will take time, and progress may be gradual. Nigeria can work toward economic stability and growth with the right policies, sincerity, and sustained commitment. It’s a marathon, not a sprint.”
