‘FG 2024 Budget Target Hangs On Sound Fiscal, Monetary Policies’

…Experts Ask CBN To Independently Pursue Inflation Goals

LAGOS – Projections by analysts have shown that the year 2024 is going to be a chal­lenging one for Nigeria’s economy and it is a year where both fiscal and mon­etary authorities will have to work to­gether if the country is to positively forge ahead.

In its latest Nigeria Economic Out­look, leading professional services firm, PwC Nigeria, says Nigeria will only meet its ambitious revenue target for the year if there is coherence and alignment between fiscal and mone­tary policy.

The report, released on Thursday, says Nigeria’s ambitious revenue targets for 2024 depend heavily on oil prices and reform implementation and historically, actual revenue real­ised has averaged less than 70 percent of the total budget.

It added that achieving budgeted oil revenue in 2024 will depend on OPEC oil production quota, international oil prices, improved security in the oil-producing regions, and geopoliti­cal factors.

“The proposed fiscal reforms have potential to boost non-oil revenue and shape the economy, but success hinges on effective budgeting and execution”, the report noted. ­

It also agreed that finding the right framework and in­struments to achieve price sta­bility is an important tool in the quest for a better economy and this is shown in several mon­etary policy tools and instru­ments deployed by the Central Bank of Nigeria (CBN) in this regard.

It argued that despite the de­ployment of monetary policy tools, the inflationary pressure in the country has persisted.

“To succeed, the CBN must independently pursue inflation goals, emphasising inflation control, and maintaining a stable financial system as find­ing coherence and alignment between fiscal and monetary policy to stabilise prices may enable the achievement of statutory and policy targets in 2024”, the report says.

It added that CBN’s clarity of policy, transparency of mar­ket operations and consistent communication will enhance stability to exchange rate price discovery and market activi­ties.

On investment, the report said investors will be cautious­ly optimistic as foreign portfolio investment flows to the capital market may remain cautious due to residual challenges.

It added that investors’ outlook may be dampened by downgrades from FTSE Rus­sell and MSCI, specifically due to delays in capital repatriation.

“Despite this, Moody’s, Fitch, and S&P maintained a speculative credit rating due to drawbacks on reforms and several fiscal challenges that persist.

“Foreign Direct Investment (FDI) flows are expected to im­prove in 2024 driven by notable expansion in the growing ICT and manufacturing sectors.”

Analysts at PwC believe the pathways to unlocking pro­ductivity in the economy may not be smooth as limited fiscal space for public investment and difficulty attracting private in­vestments will constrain the ability to make essential infra­structure improvements.

Significantly, the report says, “Infrastructure funding may remain insufficient in 2024 as the allocated infrastructure spending budget for 2024 at N1.32 trillion is short of both the World Bank’s suggested 70 percent infrastructure-to-GDP benchmark (currently at 30%) and the yearly $150 billion requirement specified in the National Integrated Infrastruc­ture Master Plan for 2021- 2025.

“Security spending in the past nine years amounted to N14.8 trillion. Despite in­creased spending, insecurity remains a challenge and jeop­ardises national stability, neg­atively affects economic activi­ties, and undermines investor confidence”.

It added that Nigeria may experience increased inflation and food security challenges due to grain import disrup­tions and high petroleum product costs but the consum­ers may likely adjust better to the evolving policy and macro realities in the year.

“Consumer spending may be pressured in 2024 due to rising prices of goods and services (increasing food and transportation costs), coupled with lower disposable income but private consumption is ex­pected to be marginally better than in 2023”.

Poverty levels are projected to increase to 38.8 percent in 2024.

Despite the low unemploy­ment rate in the country, low consumer spending and pur­chasing power remain issues, especially in the absence of a commensurate increase in the minimum wage to mitigate the inflationary growth in the economy.

In the report, PwC also sees improved sectoral devel­opment riding on reforms by the Federal Government and it projected that Nigeria’s GDP may grow marginally by 3.1 percent in 2024 on the back of these policy reforms.

“The growth projection is driven by ongoing reforms, re­covering oil production, and a proactive policy environment.

“Possible downside risks to this projection include sustained rise in fiscal debt, elevated interest rates, high inflationary levels, foreign exchange liquidity pressures, high exposure to shocks in the global value chain, poor non-oil revenues, and sector develop­ment.

“In terms of sectoral growth, the main drivers of GDP growth in the last 12 months have been the finan­cial services, information and communication, and utilities sectors”.

The firm expects these sectors to continue to drive growth in the short term as sectoral growth will be driven by a combination of demand dynamics, investment, gov­ernment reforms, and trade dynamics.