The Federal Government has been encouraged to step up measures to combat insecurity, reduce oil theft, control inflation, anchor market yield on the monetary policy rate (MPR), and enhance the business environment.
This was revealed in the Afrinvest West Africa Limited 2023 Nigerian Banking Sector Report, which was released in Lagos on Tuesday.
According to the report, ‘Getting Nigeria to Work Again,’ Nigerians and the banking industry are hoping for a positive and timely turnaround of stifling banking regulations and major monetary indices such as the exchange rate, inflation rate, Foreign Portfolio Investment, and Foreign Direct Investment flows.
According to the research, it is expected that the continued strong demand for FX in the parallel market as a result of lingering weak supply in the official market, along with inefficient processing time, will undercut the goal of these measures.
“As regards the impact of the measures on the banking industry, we expect the re-introduction of the willing buyer, willing seller model to support a modest positive upside for the FX transaction income of banks going forward,” the authors of the paper stated.
Nigeria’s budgetary downturn has remained unabated, according to Afrinvest. After surpassing N70 trillion in 2022, owing primarily to a N23.7 trillion increase from securitized Ways & Means liabilities, the entire public debt profile increased to N87.4 trillion in the first half of this year.
This, combined with poor revenue performance in the first half of 2023 (actual revenue, N4.1 trillion, underperforms pro-rata target by 26.5 percent, with 99 percent of it, N4 trillion, utilized to service debt), has pushed Nigeria closer to insolvency.
According to the report, against this backdrop, President Bola Tinubu’s new administration has implemented some policy measures to alleviate fiscal pressures, including the “partial” removal of PMS subsidy payments, an increase in education tax by 50 basis points to 3%, and the implementation of a 7.5 percent Value Added Tax on diesel.
Despite these steps, Afrinvest does not expect a rapid remedy to the fiscal pressures in the near term, citing the economy’s expanding internal and external pressure points, as well as the time lag required for policy reforms to yield results.
According to the research, the incoming Central Bank of Nigeria (CBN) leadership must be focused on reversing the previous administration’s unconventional policy initiatives, restoring market trust in the CBN’s autonomy, and prioritizing the primary aims of price and exchange rate stability.
Meanwhile, Ike Chioke, Managing Director of Afrinvest West Africa Limited, has recommended monetary and fiscal authorities to rethink their anti-inflation tactics in order to address the unpleasant story of rising inflation rates holistically.
He added that both the monetary and fiscal authorities have been preoccupied with controlling the money supply and granting selected tax breaks.
Chioke believes that addressing structural barriers, such as insecurity and infrastructure deficits, would be an effective technique for reducing the high inflation rate.
Others, he noted, include those that promote the ease of doing business and incentivize large-scale local agriculture and manufactured goods production, as well as effective liquidity management and correct anchoring of market yields to the Monetary Policy Rate (MPR).
“In all, we stress that failure to stem the surging inflation tide in the near term would result in a contagion financial sector crisis and by extension, derail other segments of the economy from the growth path, given banks’ pivotal role as an economic bridge between the supply and demand segments of the economy,” he went on to say.
Dr. Armstrong Takang, Chief Executive Officer of the Ministry of Finance Incorporated, stated that the government made the correct decision by introducing FX reforms and liberating forex formerly utilized to defend the naira.
He claimed that in the past, the Federal Government had lost a lot of money trying to protect the naira, but that the deployment of the ‘willing buyer, willing seller’ model has saved the country money.
Takang stated that the Federal Government is encouraging persons with genuine forex to bring them back home for investment in the domestic economy as part of its endeavor to release forex liquidity.
He stated that the International Monetary Fund informed the country that domestic resource mobilization is critical in Nigeria’s revenue-boosting strategy.
