President Bola Tinubu’s implementation of several reforms is expected to bring stability to Nigeria’s economic outlook.
During the first half of 2023, Tinubu’s notable reforms included the elimination of fuel subsidies and the floatation of the naira, marking a departure from the currency peg that had discouraged foreign investors and harmed the economy.
These policies have garnered praise from economists and investors due to their potential to stimulate economic growth and attract foreign investment.
Analysts and experts interviewed by BusinessDay believe that these developments paint a stable picture for the economy in the second half of 2023. Bank of America analysts stated that they anticipate a revision of the outlook from negative to stable in the near term, specifically in the second half of 2023 or the first half of 2024. They also noted that fiscal risks have eased with the removal of the fuel subsidy, leading to increased oil revenues. They further emphasized that medium-term fiscal deficits of 5-6 percent of GDP are no longer likely.
Bank of America’s analysts mentioned that the fuel subsidy removal, which accounted for about 2 percent of GDP in 2022 and around 1 percent in the first half of 2023, will enhance fiscal revenues in the second half of 2023.
The analysts added that fiscal weakness likely reached its lowest point in 2022 and is expected to improve over the medium term. They believe that the removal of the fuel subsidy, along with a potential increase in oil production, will have positive effects on fiscal revenues.
Ayodeyi Ebo, the managing director of Optimus by Afrinvest, expressed optimism that Nigeria will maintain its positive momentum throughout the year, although the impact of subsidy removals and currency depreciation might slow it down temporarily. Ebo predicted that the oil sector will improve as enhanced security supports oil production, which will contribute to growth by year-end. He also anticipated that Nigeria’s inflation rate will continue to rise due to factors such as higher petrol prices, an upward revision of electricity tariffs, and naira depreciation.
Regarding the exchange rate, Ebo stated that if the Central Bank of Nigeria can sustain supply, clear FX backlogs, and witness improved FX inflows from Nigerians in the diaspora, he expects the naira to appreciate to below $700/$1 before the end of the year.
Ebo also mentioned the possibility of the Federal Government of Nigeria issuing eurobonds before the year-end if the global interest rate environment improves. He expressed confidence that Nigeria’s stock market will maintain its positive trajectory if FX policies are sustained and overall confidence improves. Ebo suggested that investors should have a long-term perspective due to higher prices.
According to the Centre for the Promotion of Private Enterprise (CPPE), the Tinubu-led administration is already steering the economy towards a positive course, which bodes well for recovery and growth. The CPPE’s economic review reports highlighted elevated investor confidence, an improved government fiscal space, prospects of exchange rate stability in the near term, and positive expectations of better economic governance for the second half of 2023.
The report also indicated a positive outlook for forex liquidity in the short to medium term, with prospects of increased capital inflows. However, the CPPE emphasized the need to address the social consequences of recent reforms, particularly the inflationary pressure resulting from the removal of fuel subsidies. Urgent measures were recommended to mitigate the rising cost of living and escalating operating and production costs, particularly for businesses.
The CPPE advised the Tinubu administration to promptly implement measures to alleviate the challenges posed by the ongoing reforms. It suggested a combination of direct interventions, tax incentives for low-income employees and small businesses, and reduced import duties on critical intermediate products for key sectors such as transportation, health, power, and energy. The CPPE noted that the improved fiscal space
