Financial analysts at FSL Securities Limited have said that with the current naira devaluation, the 2024 budget size is insignificant to drive the economy.
Mr. Victor Chiazor stated this in his economic review and outlook for the 2024 presentation tagged ‘Navigating the Tides’.
The two chambers of Nigeria’s National Assembly had in December passed the 2024 Appropriation Bill of N28.7 trillion, increasing it by approximately N1.2 trillion from the initial N27.5 trillion proposed by President Bola Tinubu.
Chiazor noted that with the free fall of the naira, the value of the 2024 budget size was below $30 billion which was against the value in 2022 and 2023.
- “I think we are depending too much on Nigeria’s Budget, looking at 2022 and 2023, the value of the Nigerian budget was above $40 billion but the current budget in terms of dollars was below $30 billion following the devaluation of naira.
- “The budget is not big enough to drive the economy, what the government needs to do is to drive more revenue. The government should also be policy-consistent.
- “Being policy consistent will help the private sector to drive the economy because the government alone can’t achieve the proposed N1 trillion economy even in the next 10 years,” he said.
Economic activities in the new financial year
Chiazor said that the economic activities in the new financial year are expected to pick up from the first quarter of 2024 as ministers and major government appointments have been made.
He added that the year 2024 will see the federal government struggle with the current elevated debt levels as its current debt-to-service ratio remains significantly high.
On the equity side, he said the equities market will likely struggle to achieve the performance reported in 2023 but will be dominated by domestic players as the market expects foreign investors’ interest in the market to be low.
- “The market will majorly be impacted by a dovish stance of the CBN and company performance. The visibility of the fiscal authority is expected to improve in the year. Monetary policy for 2024 is expected to remain mixed as it will continue to monitor unfolding events and decide whether to adopt an expansionary policy or contractionary monetary policy,” he said.
The high-interest rate environment
Chiazor said the high-interest rate environment is expected to reduce the level of capital raising exercise by the private sector and may slow private sector activities.
- “On the back of a high base effect, we expect the inflationary trajectory to begin to significantly ease from the second half of 2024, but may quickly reverse if oil prices soar.
- “At the current level of interest rate, businesses and even individuals with significant loan exposure will be affected. This is expected to negatively impact the profit margins of companies.
- “Foreign direct investments are expected to remain low on the back of security challenges, foreign exchange uncertainties, and issues around policy inconsistencies,” he said.
Chiazor said that government borrowing is expected to continue, and at a higher interest rate as it continues to raise capital to fund its budget deficit.
He added that more transparency is needed around the issue of fuel subsidy and this needs to be immediately managed by the new government, to avoid a total collapse of the country’s fiscal space.
- “The country’s foreign reserve is only expected to recover when oil production increases and the Dangote refinery eventually begins operation around mid-2024.
- “The Dangote refinery commenced production of aviation fuel and diesel and is expected to move into petrol output,” he said.
