The plan by the Federal Government to achieve $1 trillion Gross Domestic Product (GDP) in the next seven years will require the collaborative policies from the fiscal and monetary authorities, Co-Managing Partner, Comercio Partners Limited, Stephen Osho.
Speaking yesterday during the unveiling of the 2024 microeconomic outlook in Lagos, he said recapitalization of the banking sector will help solidify the financial sector and achievement of the GDP goal.
He said the $1 trillion economy is a goal set by government, that requires monetary and fiscal authorities collaboration.
Also speaking, Co-Managing Partner/Head, Trading, Comercio Partners, Nnamdi Nwizu, said naira stability will support government’s plan to attract more foreign direct investments to the economy.
He said businesses need forex availability and stable naira to thrive even as lower interest rate are also key to business success.
In his presentation, Investment Research Associate, Comercio Partners , Ifeanyi Ubah, disclosed that in a bid to tame the soaring inflationary pressures, the Central Bank of Nigeria (CBN), mirroring global counterparts, embarked on a journey of additional restrictive monetary policies.
“A formidable 225 basis points increase brought interest rates to a towering 18.75 per cent. However, the impact of these measures is yet to manifest fully, as Nigeria contends with rampant inflation spurred by escalating food import prices, exacerbated by a persistent dollar shortage,” he said.
“Simultaneously, the CBN, orchestrating its monthly bond auctions, has raised investment rates across various bonds, witnessing rate hikes of 826bps, 110bps, and 300bps for the 364DTM, FGN 5-year, and FGN 10-year bonds since January,” he said.
On liquidity, he said explained that contrary to CBN’s efforts to curtail money supply, the system liquidity remains robust. Notably, the investor appetite for government bonds has seen a substantial uptick.
The report explained that in the Nigerian Treasury Bills (NTB) space, total sales have grown by 3.5 per cent Year-on-Year (y/y), reaching N4.9 trillion, with total offerings climbing by 4.5 per cent to N4.16 trillion. The spotlight, however, falls on the remarkable 94 per cent surge in auction demand, a testament to heightened liquidity amidst escalating rates,” he said.
According to the report, heading into first half of 2024, investors are poised to scrutinize the CBN’s guidance on the rate trajectory during upcoming auctions. The consistent upward trend in auction stop rates across all tenors is expected to persist, serving as a crucial tool for the central bank to manage the money supply in the face of external reserve constraints. Higher auction rates are anticipated to magnetize liquidity into the market, as local investors seek elevated returns, concurrently prompting an increase in NTB supply.
On the prevailing USD backlog, coupled with external challenges amidst global economic uncertainties, casts a shadow of uncertainty over Nigeria’s economic horizon.
It said: “As the backlog intensifies, there looms a growing risk of heightened pressure on the exchange rate. This ominous scenario is compounded by factors such as dwindling external reserves and capricious fluctuations in crude oil prices.
“The specter of exchange rate strain introduces an element of volatility and uncertainty into the local bonds market. Local investors, cognizant of the potential impact of currency devaluation on their investments’ real returns, approach the market cautiously”.
“ Foreign investors, too, may choose to remain on the sidelines, navigating the turbulent waters with prudence. As Nigeria charts its course through these economic headwinds, the path forward remains uncertain. The nation stands at a pivotal juncture, where the interplay of inflationary pressures, tightening measures, liquidity dynamics, and currency challenges will shape its economic destiny in the coming months. Investors, both domestic and foreign, watch intently, braced for the next chapter in Nigeria’s economic odyssey,” it said.
