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By Maduka Nweke
The Chief Executive Officer of Nairametrics, Mr. Ugodre Obi-Chukwu, has warned that Nigeria’s burgeoning fiscal deficits, escalating debt burden and persistently high inflation could severely undermine exchange rate stability and nullify the gains from the country’s ongoing foreign exchange (Forex) reforms.
Speaking at the Financial Correspondents Association of Nigeria’s (FICAN) monthly forum in January, which focused on Nigeria’s Macroeconomic Outlook for 2025, Obi-Chukwu stressed that while infrastructure projects hold the potential to unlock significant economic opportunities—by improving transportation networks, creating new residential areas, and attracting both investment and population shifts—the country must address several critical issues if it is to ensure the success of these initiatives.
According to Obi-Chukwu, resolving the mismatch between the true value of the naira and its current exchange rate will require a steady and adequate supply of foreign currency. He highlighted that Nigeria must contend with the challenges posed by a stronger U.S. dollar and the increased competition for dollar inflows from other frontier markets.
“Nigeria’s large fiscal deficits, growing debt burden, and high inflation rate possess more threat to exchange rate stability and could rubbish the benefits of ongoing Forex reforms,” Obi-Chukwu warned. He advised businesses to “hedge against a worst-case scenario of N2,200/$1 and take advantage of a best-case scenario of N1,700/$1.”
Further elaborating on the country’s economic performance, Obi-Chukwu noted that Nigeria’s Gross Domestic Product (GDP) grew by 3.46 percent year-on-year in real terms during the first quarter (Q3) of 2024. This growth marked the 17th consecutive quarter of GDP expansion, with the services sector driving the growth. The services sector saw a 5.19 percent increase, contributing 53.50 percent to the aggregate GDP. Notably, the finance and insurance sectors played a pivotal role, registering a 31.9 percent growth. Meanwhile, the industrial sector experienced modest growth of 2.18 percent, a significant improvement from 0.46 percent in Q3 2023, while the agricultural sector grew by 1.14 percent, contributing 28.65 percent to the GDP.
Obi-Chukwu also reflected on the legacy of strategic investments during the administration of former President Olusegun Obasanjo. He explained that the period showcased how targeted investments could fuel a thriving economy. “Nigerian companies attracted global investments, and many Nigerians in the diaspora were compelled to return, inspired by the economic potential created by these reforms,” he said.
To replicate the success of that era, Obi-Chukwu proposed a focused approach to modernizing critical sectors, particularly agriculture, transportation, power generation, and the oil and gas infrastructure.
He noted that while the Purchasing Managers’ Index (PMI) has been improving this year, it remains largely driven by the services sector. In September, the PMI revealed that the services sector expanded for the fourth consecutive month, while the agricultural sector saw its second consecutive month of growth. However, the industrial sector has faced continued challenges, having contracted for nine months in a row. Despite this, there was some positive momentum in recent months, as 10 out of 17 subsectors recorded expansion during the month, while three remained unchanged, and four contracted.
Obi-Chukwu emphasized that for Nigeria to unlock its growth potential, it must implement complementary policies that promote transparency, accountability, and continuity in these crucial projects. However, he cautioned that significant challenges—such as high inflation, exchange rate instability, and fiscal deficits—must be addressed to ensure sustainable growth. While he acknowledged that targeting a 15 percent inflation rate may be overly ambitious, he projected that inflation could stabilize between 29 and 30 percent if ongoing reforms are maintained.
