Naira To Reach ‘Fair Value’ Of N750/$ By Year’s End – FG

The Federal Government is planning to introduce new foreign exchange rules — including a crackdown on illegal currency trading — that it hopes will result in the naira closing its more-than-45 per cent gap with the unofficial rate and reaching a “fair price” by year-end, a top official has said. The government plans to clear a backlog of dollar demand estimated at about $6.7 billion, bolster the naira forward market, and set transparent rules for the operations of the official market, Taiwo Oyedele, chair of the presidential committee on fiscal policy and tax reforms, said in an interview with Bloomberg. The government sees a “fair price” for the dollar at N650 to N750, Oyedele said. In the parallel market, it traded at N1,165 per dollar yesterday, already beginning to recede from the former high of about N1,130 to the dollar. The government plans to clear a backlog of dollar demand estimated at about $6.7 billion, bolster the naira forward market, and set transparent rules for the operations of the official market, Oyedele said. It also aims to expand the official market to include all legitimate transactions, while snuffing out the illicit “black market” for foreign currency, he said. “We think all of that will happen before December, and maybe in a matter of a couple of weeks we will begin to see the results, such that before the end of the calendar year, naira should find its true value, not the one that is being done currently in the parallel market,” Oyedele said.

Nigeria’s eCommerce Revenue To Hit $6.710m By December

Revenue in Nigeria’s eCommerce market is projected to reach $6,710.00 million by December 2023, a new report by Statista has said. In its eCommerce in Nigeria report, the data company stated that revenue is expected to show an annual growth rate (CAGR 2023-2027) of 10.79 per cent, resulting in a projected market volume of $10,110.00 million by 2027. With a projected market volume of $1.319 billion in 2023, the report noted that most revenue will be generated in China. “In the eCommerce market, the number of users is expected to amount to 143.9m users by 2027. “User penetration will be 45.3% in 2023 and is expected to hit 58.6% by 2027. “The average revenue per user (ARPU) is expected to amount to $66.23, the report said. 

Debt Rising Cost May Increase Cost Of Borrowing – PwC

Cost of funding increase in debt concerns which has led to lowering of credit ratings may lead to increase in the cost of international funds, PricewaterhouseCooper (PwC) has said. In its Nigeria bi-monthly Economic Outlook released on its website titled “Impact of global economic trends on Nigeria’s foreign exchange and the way forward”, the professional services firm said it may increase the demand pressure on forex to meet future FX debt service obligations. According to the firm, it is evident in the decline in capital importation from $24 billion in 2018 to $5.3 billion in 2022.   “The increase in the global Central Bank’s policy rate may lead to capital reallocation away from Nigeria’s financial market to other markets with more attractive yields on investment. This may reduce FX flows to the economy “The Nigeria MSCI index recorded a significant decline of 113%, from 23.5% in 2020 to -3.02% in 2022, reflecting capital reallocation to other economies A marginal trade surplus may lead to an increased pressure on FX threatening liquidity in the forex market. In Q2 2023, Nigeria recorded a positive balance of trade of $2.3 billion. The positive trade balance could be attributed to the growth of total export by 9% (y/y) to $12.5 billion “The decline in remittance flows may reduce FX flows to the economy. Though remittances to Nigeria accounted for 38% of the total flows to the region, it increased by only 3.3% to $20.1 billion “Lower credit ratings due to Nigeria’s widening fiscal deficit, debt service to revenue ratio may reduce confidence in the Nigeria economy. This may lead to reallocation of funds from the Nigerian economy and reduction in FX flows,” it said. Over time, the company observed that there has been a rise in the inflows of FX from autonomous or non-CBN sources, which has led to the widening divergence between the official and parallel market rates. “Since 2007, the FX inflows from autonomous sources exceeded inflows from the CBN “The implication of official interventions may not accurately reflect the market demand and supply dynamics as annual inflows are skewed towards unofficial sources,” it said. To address this imbalance, there is a need for authorities to boost investors’ confidence by deepening the financial markets, ensure longer term sectorial policy to maximise exports or deepen domestic consumption, and roll out short-term fixes to enhance foreign exchange liquidity.

Diminishing Naira Will Push Inflation To 18-Year High Of 27.67% – Rewane

Chief executive Officer of Financial Derivatives Company Limited, Bismarck Rewane has projected that inflation is set to rise to 27.57 per cent due to a weak naira. This is the ninth consecutive rise in inflation rates.Analysts say it would represent the highest figure ever reached since September 2005.“Nigeria’s headline inflation is expected to increase again in September, rising to 27.57 per cent from 25.80 per cent in August. “Price increases were most notable in the food basket, predominantly commodities with high import content such as flour, semovita, noodles, and sugar. “With prices rising, fingers are pointing towards the exchange rate as the major inflation culprit. The naira crossed the psychological threshold of N1,000/$ in the parallel market, pushing up imported inflation despite the relative stability in global food prices. The Food and Agricultural Organisation of the United Nations (FAO) food price index was relatively flat at 121.5 points (pts) in September.”, said Rewane. Apart from the weak naira, drivers of inflation includes higher logistics costs and money supply growth (36 per cent year-on-year (y-o-y), saying the price of diesel, the major fuel used by trucks for logistics and distribution purposes, surged to a record high of N1,030/litre during the period. “Notably, month-on-month inflation, which is a more current measure of price movement, is expected to decline marginally to 2.78 per cent from 3.18 per cent in August, largely due to the harvest season impact. This suggests that inflation is likely to reach an inflection point and could begin to taper in the first quarter of 2024.

FG’s Fiscal Deficit To Further Decline In Q3, Q4 -MPC

Some members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) have projected that the federal government’s fiscal deficit will continue to decline in the third and fourth quarters of 2023. Their projections are predicated on the recent efforts by the government to manage expenditures better and also improve oil and non-oil revenues.  Their prediction contained in their various personal statements during the last MPC meeting, as posted on the CBN website.                In his personal statement, the Permanent Secretary, the Federal Ministry of Finance, Budget, and National Planning, Aliyu Ahmed, said: “The fiscal deficit is expected to decline in the third and fourth quarters of 2023 on the back of recent efforts by the new government to manage expenditures better and also improve oil and non-oil revenues. “With expenditure reprioritization and fiscal wisdom at both the federal and state levels, there is an expectation that the government debt ratio may fall at least marginally by the end of 2023.  “Speaking on the fiscal sector, Adenikinju Adeola, a member, explained that both government revenue and expenditure underperformed between January and May 2023. He explained that the Federal Government’s retained revenue stood at N1.67 trillion, lower than the pro-rata target of N1.96 trillion due to the underperformance of Federation Account Allocation Committee (FAAC) receipts and gross independent revenue.       However, on the positive side, he stated: “Total FGN expenditure as of May 2023 was N4.76 trillion, 27.8 percent lower than the budget estimate of N6.606 trillion. The shortfall came mainly from allocations for debt service, interest on Ways and Means, and capital expenditure. “Overall budget deficit reduced by -18.15 percent in the first five months of 2023.   “The underperformance of the budget is especially felt in the capital expenditures, thus impacting negatively on economic development”, he added.  On his part, another member, Obadan Mike, noted that although the new government is making serious efforts to boost revenue generation, fiscal deficits and associated public debt accumulation will continue to elicit deep concerns.      Meanwhile, the MPC members also called for a review of border closures to increase food supply in the country while expressing concern about the decline in growth of the agricultural sector in the first quarter of 2023.                                                            Adenikinju said, “The continuous closure of the borders should also be reviewed. This is to expand food and non-food supply to the economy and force down domestic prices, especially food.  Also expressing concern about the declining growth in the agricultural sector, Ahmed said: “The decline in growth in the agriculture sector is particularly worrisome, given its role in food production and employment generation.    “Targeted intervention by the fiscal and monetary authorities in the agriculture sector is crucial to ensuring medium- to long-term food security and price moderation. The recent initiative by the CBN to offload grains from the national strategic grain reserves to lower food prices could not have come at a more auspicious time. “There is also a need to leverage the African Development Bank (AfDB) Agro Pocket Wallet to support farmers in the production of grains and fertilizers.”