To enhance the impact of the budget on economic growth, there is a need for the government to adopt cost-cutting initiatives, increase investment in capital projects and keep to fiscal discipline guidelines.
According to analysts at Afrinvest Research, the measures would go a long way to control rising debt and other challenges that may hamper economic prosperity.
In its 2024 budget revision, the analysts, while applauding the recalibration of the budget mix to increase capital budget allocation, maintained that revenue assumptions, especially crude oil revenue forecasts, are overly bullish.
“In a blue-sky scenario, our model suggests that the naira should trade around ₦911.29/$, weaker than FG’s projection and positive for naira earnings from oil sales.
“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 ₦13 trillion (budgeted: ₦9.3 trillion), while annual GDP growth should print at about three per cent in a base case as against FG’s 3.8 per cent projection,” they noted.
The analysts noted that offshore capital has steadily dwindled since the pandemic and is currently on track to close at $3.8 billion for the full year of 2023, representing 15.7 per cent of its pre-COVID level and 60.8 per cent of its FY forecast of $6.2 billion).
They attributed the weak third quarter (Q3) performance to negative shocks from reforms introduced during the second quarter (Q2), which induced a ‘wait-and-see’ reaction from offshore investors coupled with the premature exit of the former CBN Governor, Godwin Emefiele.
On the global scene, Afrinvest noted that investors adopted “a risk-off stance towards the emerging market (EM) securities. Data from the International Institute of Finance (IIF) showed that excluding July’s $32.8 billion inflows into EM, Q3 was dominated by outflows totalling $29.3 billion as advanced market interest rates reached their peak.”
The analysts said the combination of initial turbulence from domestic reforms (inflation and exchange rate shocks), institutional and political headwinds alongside global monetary policy normalisation accounted for the Q3 capital inflow fragilities.
Consequently, they argued that the resurgence in capital inflow for 2024 is premised on clarity on domestic monetary and FX policy direction, global monetary policy pivot, cheap local assets as well as improved domestic macroeconomic fundamentals.
Analysts at Codros Research said the persistent slowdown in capital importation reflects foreign investors’ lacklustre interest in the country given the lingering FX liquidity constraints, domestic interest rates and the uninspiring macroeconomic situation.
“We anticipate foreign inflows to remain subdued compared to pre-COVID levels due to foreign investors adopting a cautious ‘wait-and-see’ approach. We believe they will await signals from the CBN regarding further initiatives to enhance FX supply and provide short-term support to the market, particularly amidst elevated global interest rates.
“Consequently, if there is a notable improvement in local FX liquidity, leading to higher market rates and simplified capital repatriation for investors, we expect an increase in foreign capital inflows over the medium term,” they said.
