…See Foreign Loans Boosting Forex Supply Soon
Just as the 2024 budget has been receiving rave commendations, the Federal Government has been warned to be mindful of some assumptions in the budget which are described as dangerous mines.
Financial experts also see a silver lining on the horizon from the disappointment in the abysmal depreciation of the naira in 2023 with plans towards borrowing to boost foreign exchange.
The N28.8 trillion 2024 fiscal plan, signed into law by President Bola Ahmed Tinubu initially was N27.5 trillion and it was raised by N1.2 trillion by the National Assembly (NASS) following revisions to revenue expectations and reprioritisation of spending focus in favour of capital projects.
Precisely, the National Assembly raised the allocation for capital expenditure by 14.9 percent to N10.0 trillion while recurrent spending was trimmed by 11.7 percent to N8.8 trillion.
Also, the sums of N8.3 trillion and N1.7 trillion were approved for debt servicing and statutory transfers, respectively.
On the revenue side, key changes to the budget assumptions include adjustment of exchange rate and real GDP growth to N800.00/$ and 3.9 percent, respectively, against the initial outlook of N750.00/$ and 3.8 percent.
In a blue sky scenario, analysts suggests that the naira should trade around N911.29/$, weaker than the Federal Government’s projection and positive for naira earnings from oil sales.
Meanwhile, oil revenue assumptions of $77.96/bbl price and 1.78mbpd production were left intact. Based on the revision, the Federal Government estimates FY 2024 budget deficit at 3.9% of GDP.
While many applauded the recalibration of the budget mix to increase capital budget allocation, others maintain the view that revenue assumptions, especially crude oil revenue forecasts, are overly bullish.
Reacting to the exaggerated assumptions, analysts at Afrinvest, at the weekend, said, “We expect downward pressure on global oil price and domestic crude output to derail budgeted oil revenue in 2024. Also, our model suggests that the budget deficit should exceed N13.0 trillion (budgeted: N9.3 trillion), while annual GDP growth should print at about 3.0 percent in a base case as against Federal Government’s 3.8 percent projection.
“We opine that cost-cutting initiatives, full implementation of capex, and fiscal discipline to rein on rising debt are sustainable ways to enhance the impact of budget on economic growth.
“In a blue sky scenario, our model suggests that the naira should trade around N911.29/$, weaker than Federal Government’s projection and positive for naira earnings from oil sales”.
Loans And FX Supply
The Federal Government is optimistic that by the second quarter of 2024, some steps taken towards attracting foreign loans, donor support and oil sales will boost the naira in 2024.
This is currently eliciting reactions from analysts.
Muda Yusuf, Chief Executive Officer, the Centre for the Promotion of Private Enterprise (CPPE), said the outlook for foreign exchange would be influenced largely by developments around the fundamentals of supply and demand of foreign exchange.
He said the supply side would be driven by some variables, such as the prospects of attracting more investment into the oil and gas sector, especially leveraging the Petroleum Industry Act and growth of diaspora remittances and other inflows from foreign direct investment and foreign portfolio investment.
He said the clearing of foreign exchange backlog by the CBN would impact investors’ confidence and improve inflows in the medium to long term.
Razia Khan, Managing Director and Chief Economist, Africa and Middle East Global Research at Standard Chartered Bank is one of the optimistic ones, said in a note.
She said, “We expect donor support and external borrowing to boost FX reserves.”
“The World Bank is expected to approve about $1.5 billion of budget support under the 2023 budget,” adding that a similar amount is likely to be available for 2024.
“Nigeria hopes to draw on World Bank project financing of about $1.9 billion, although this may occur only in the medium term. Authorities hope that oil-backed borrowing from Afreximbank (sometimes described as the forward sale of oil), a syndicated loan for Nigeria LNG, and support from Middle Eastern sovereigns will allow them to meet an aggregate FX inflow goal of about $10 billion, allowing the CBN to clear its verified FX forwards settlement backlog and stabilise the market”.
Significantly, Nigeria received $2.25 billion out of the $3.3 billion of the long-awaited foreign exchange support facility from Afreximbank, targeted at helping the acute forex shortage that has negatively affected the economy.
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