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By Chinwendu Obienyi
Leading financial services firm, Afrinvest has projected that effective implementation of tax reforms could unlock an additional $7.5 billion annually for Nigeria’s economy.
Additionally, the group forecasts that the Naira may weaken to N1,804.45/$1 by 2025 if current economic trends persist, particularly inflationary pressures, foreign exchange scarcity, and challenges in fiscal and monetary policy alignment.
In its report titled; Beyond the Rhetorics: Transforming Reforms to Tangibles, the group noted that with the National Assembly currently reviewing four legislative proposals which include the Nigerian Tax Bill (NTB) 2024, the Nigerian Tax Administration Bill (NTAB) 2024, the Nigeria Revenue Service Establishment Bill (NRSEB) 2024 and Joint Revenue Board Establishment Bill (JRBEB) 2024, the proposals contain the recommendations the Special Presidential Committee on Fiscal Policy and Tax Reforms led by Taiwo Oyedele.
The firm added that despite the potential benefits, the proposed tax reforms face political and regional resistance as there are concerns over perceived inequites in tax redistribution, particularly between the northern and southern states, thus highlighting tensions.
It would be recalled that economic experts had argued that the reforms favour consumption-heavy regions like Lagos and Rivers states, igniting debates over federalism and economic restructuring.
The firm noted that addressing these grievances through transparent stakeholders’ engagement will be critical for successful implementation.
“Effective implementation of the tax reforms could help unlock about $7.5 billion annually. This would be pivotal to revitalizing the currently challenged fiscal capacity, evidenced by the jump in the national debt profile and debt-to-GDP ratio to N138 trillion and 58.3% in 11 months from N97.3 trillion and 40.1% respectively in 2023”, the report said. The report also revealed that the Naira could depreciate to a weighted fair value of N1,804.45/$1 in 2025 owing to the volatile environment.
The research based company revealed that while the gross foreign reserves have risen above $40 billion, “we anticipate that exchange rate volatility would persist in 2025 albeit at a modest pace.
Our prognosis is hinged on the belief that the CBN would be constrained from adequately meeting market demand on a sustained basis, as the recent FX reserves accretion were largely driven by inflows from inorganic sources, including those with stringent conditions on usability,” it said.
This prediction comes against the backdrop of the nation’s 2025 budget which assumes that the exchange rate would steady at N1,400 against the dollar.
The naira closed on a positive note this week though strengthening from N1,548.40/$1 as at the eve of Christmas to N1,534/$1 on Friday, 27th December, according to data compiled from the FMDQ Securities.
The local currency has had its steepest fall in 2024, plunging to almost N2000 against the greenback on the street in February while trading at about N1,700 on the official window.
This was the aftermath of the radical reforms implemented by the federal government – floating the currency and a two time devaluation of the naira has seen the local unit lose over 40% of its value year to date.
In recent times, the market has been relatively stable and transparency has been restored on the back of the FX BMatch introduced in October.
Economists have said the sustenance of the EFEMS and a more expansive net reserves could party ease the pressure on the naira.
Analysts at Afrinvest however stated that the naira may appreciate should there be more inflows and liquidity, especially from crude oil exports and remittances.
“Notwithstanding, we do not rule out the possibility of a significant rebound in the Naira, especially if accretion from organic sources-crude oil & non-crude oil exports, foreign capital flows, and diaspora remittances- takes significant leap,” the report stated.
