. Says Naira to appreciate to N650/$1
By Chinwendu Obienyi
Pan-African credit rating agency and foremost business information provider, Agusto&Co has forecasted that Nigeria’s total subsidy bill would reach N5 trillion in 2023, thereby limiting expenditure on crucial infrastructure needed to galvanise economic growth in the medium to long term.
The agency also projected that a gradual downward adjustment of the official exchange rate to N480-N500/$ and a simultaneous increase in FX supply, which would signal a willingness to shift ground, would likely trigger an appreciation of the naira in the parallel market to N650-N680/$.
The projection is contained in the agency’s recently released report titled ‘2023 Outlook: Nigeria, a Nation on the Precipice’. It noted that doing away with subsidy would be inflationary and is likely to trigger severe backlash from unions and many sections of the wider public.
It, however, encouraged the outgoing administration to eliminate the subsidy as it would make way for further and more fundamental fiscal reforms.
Agusto also said that all three leading presidential candidates, on the surface, appear willing to ‘allow’ for a more market-determined exchange rate. and added that a successful election would ease frayed nerves and bolster investor confidence.
A further look at the report revealed that the agency projects 3 per cent growth for the economywhich is higher than the 2.9 per cent growth estimated by the World Bank but lower than the International Monetary Fund (IMF) 3.2 per cent.
“Agusto & Co has a slightly more optimistic forecast, at 3 per cent, and believes GDP growth will be supported by election spending, improved oil output (to 1.3-1.4mbpd) and still high oil prices ($88pb) but will be constrained by low investment and productivity,” the report reads. How quickly Nigeria can stem rampant oil theft and vandalism will be crucial to boosting foreign exchange earnings and providing the CBN with enough ammunition to intensify its interventions in the forex market. However, we expect high global interest rates to continue to limit capital inflows and add to currency pressures in 2023.”
The agency said that Nigeria’s insecurity challenge is expected to continue to be a major issue in 2023, stressing
that the problem would require a two-pronged approach – deploying resources to military artillery, personnel and intelligence; while also confronting the more deep-seated problems of pervasive poverty, high unemployment and extreme levels of inequality. “We project that inflation would reduce in 2023 to 15 per cent – 17 per cent because of the Central Bank of Nigeria’s monetary policy pragmatism as well as the easing of global commodity prices from their peak in 2022.
This is despite the impact of predicted floods and widespread insecurity on food production, as well as elevated energy prices, election-related spending, exchange rate pressures, and cost-reflective rates (petrol and electricity),” the agency said.
Speaking on the outlook of the insurance industry, Agusto&Co said Nigeria’s political environment will define the financial year 2023 for insurance operators.
“The first half of 2023 would be characterised by electioneering activities while the second half would bring a new administration and fresh ideas for fiscal and economic transformation. Possible election violence poses a downside risk that could adversely impact insurance operators, especially if it is a widespread occurrence across several states. However, there will also be opportunities to secure new insurance contracts from the public sector, especially in the second half of 2023.
In the near term, Agusto& Co. expects the introduction of a risk-based capital regime to gain momentum while NAICOM continues to implement policies and directives that would boost the Industry’s sustainability. A strong regulatory stance to claims payments which resulted in the withdrawal of the license of some insurers in 2022, though being contested in the court of law, would remain in 2023 and possibly going forward as part of NAICOM’s efforts to sanitise the Industry”, the report stated.
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