The new budget the litmus test
The Buhari presidency will very shortly announce the new government. Expectations are high. Some gains have been delivered on security and in the oil industry. The 2016 budget will, however, prove the litmus test. Under the best case scenario, it will trim wastage, create space for a small rise in capital spending, boost non-oil revenue collection and show innovation in infrastructure financing. The reality is likely to be less dramatic.
Not much help coming from the oil price
The supply/demand balance for crude is not set to improve before 2017 at the earliest. Inventory accumulation, China worries and the Iran deal militate against a more rapid recovery. We see an end-2015 spot price for Bonny Light of US$62/b.
A third devaluation on its way
The CBN and MPC are in no mood to succumb but we feel that the inelasticity of fx demand, relative to the slump in fx inflows, will lead to another devaluation. They may resist into the New Year but we see the interbank rate at N215 at year-end.
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