Tinubu’s reforms seen moving economic outlook back to stable

The economic outlook for Nigeria is expected to be stable thanks to a number of reforms implemented by President Bola Tinubu.

In the first half of 2023, Tinubu’s most significant reforms have been the removal of the fuel subsidy and float of the naira, a marked departure from years of a currency peg that spooked foreign investors and hurt the economy.

These policies have been praised by economists and investors for their potential to boost economic growth and attract foreign investment.

Analysts and experts who spoke to BusinessDay said the developments paint a stable second-half outlook for the economy.

“We expect a near-term revision of the outlook from negative back to stable in the second half of 2023 or the first half of 2024. Fiscal risks have eased on the removal of the fuel subsidy, resulting in higher oil revenues,” analysts at Bank of America said.

“Fiscal deficits of 5-6 percent of GDP are no longer likely in the medium term”.

The financial think-tank institution said the removal of the subsidy, which cost about 2 percent of GDP in 2022 and about 1 percent of GDP in the first half of 2023, will improve fiscal revenues in the second half of 2023.

“Fiscal weakness is likely to have bottomed in 2022 and should improve over the medium term. The removal of the fuel subsidy and likely increase in oil production should be positive for fiscal revenues,” Bank of America’s analysts said.

Ayodeyi Ebo, the managing director of Optimus by Afrinvest said Nigeria will sustain its positive momentum for the rest of the year although he said “This is likely to be slower due to the short-term impact of subsidy removals and exchange rate depreciation.”

“We expect an improvement in the oil sector as better security supports oil production which will boost growth towards the end of the year,” Ebo said.

Ebo predicted Nigeria’s inflation rate will sustain its upward movement due to pressures from higher petrol prices, upward review of electricity tariff, and depreciation of the naira.

Concerning Nigeria’s exchange rate, he said, “We expect the naira to appreciate before the end of the year to below $700/$1 if the Central Bank of Nigeria is able to sustain supply and clear FX backlogs and also improved FX inflows from Nigerians in the diaspora.”

“The Federal Government of Nigeria may raise eurobonds before the end of the year if the global interest rate environment improves,” Ebo added.

Ebo said he is optimistic that Nigeria’s stock market will sustain its positive form for the rest of the year if the FX policy moves are sustained and confidence improves.

“We expect foreign portfolio investors and pension fund administrators to increase their activities in the stock market. Investors should have a long-term horizon due to higher prices,” he said.

Read also: Oronsaye report to test Tinubu’s cost-cutting champions

The Centre for the Promotion of Private Enterprise (CPPE) said that the President Tinubu-led administration is already charting a new and positive course for the economy which portends bright prospects for recovery and growth.

“On the outlook for the second half of 2023, there are clear indications of elevated investors’ confidence, improvement in the government fiscal space, higher prospects of exchange rate stability in the near term, and positive expectations of better economic governance,” CPPE said in its economic review reports signed by its CEO Muda Yusuf.

The report noted that the short to medium-term outlook for forex liquidity is very good and prospects of increased inflow of capital are very bright.

“However, there is an urgent need to address the social outcomes of the recent reforms, especially the inflationary pressure induced by the fuel subsidy removal. Urgent measures need to be put in place to mitigate the soaring cost of living and the escalating operating and production costs, especially for businesses,” CPPE explained.

It added, “With a better fiscal space, the outlook for lower fiscal deficit, moderation in the growth of public debt, reduction in debt service burden, and improvement in the macroeconomic stability are very positive.

“All of these would impact economic growth prospects in the second half of the year.

The CPPE advised the Tinubu administration to promptly deploy measures to mitigate the current headwinds inflicted by the current reforms.

“The interventions should be a mix of direct interventions, tax incentives for low-income employees and small businesses, reduction in import duty on some critical intermediate products for key sectors of the economy, import duty concessions for the transportation, health, power and energy sectors,” CPPE said.

“The improved fiscal space created by the reforms should make these mitigating measures feasible and they have to be implemented urgently in order to give the current reforms a human face.”

Last week, analysts at Bank of America said the early moves by President Tinubu to put the country on a more orthodox economic trajectory could earn Nigeria upgrades from Moody, Standard and Poor’s (S&P), Fitch, and Moody.