We have little festive cheer to share as the year closes although we can detect some green shoots of recovery. The economy has contracted for three quarters in a row, and headline inflation accelerated for ten successive months on a y/y basis. Monetary policy has been blunted while the CBN continues to manage the interbank exchange rate despite the said liberalisation in June. In these circumstances offshore investors remain on the sidelines, waiting for some positive signals to warrant their market re-entry.
The FGN is not wedded to the free market. It introduces reforms when the alternative is unpalatable. On this basis, it hiked the ceiling on the retail price of gasoline in May and the CBN announced the liberalisation.
At some point in Q1 2017 the FGN will conclude its third sale of Eurobonds. The timing remains favourable. The yields on the July ‘18s and July ‘23s have eased to about 4% and 7% respectively.
Over time, other inflows will materialize. These could include sizeable multilateral loans, an asset sale or two and advance payments for crude oil. Ours is the scenario of the piecemeal solution to the exchange rate impasse. A number of transactions finally triggers the autonomous inflows on a scale to make the liberalisation a reality. The regime may not be floating but could then be termed “market-driven” (to use the CBN’s own words). This process would be more rapid, as the Egyptian example shows, if the FGN was prepared to take IMF loans. Such a step, however, is off-limits for historic reasons.
The pick-up in the oil price following the OPEC agreement in Vienna and the pledge to production restraint by some leading non-OPEC players, led by Russia, has been timely, giving the authorities a little room for manoeuvre.
The FGN’s contribution to Nigeria’s emergence from recession is its expansionary fiscal stance. Its good record for capital releases this year should be noted, given the obvious constraints on revenue collection.
We see GDP growth of 2% in 2017. This is far from transformative, particularly when we recall the higher rate of population growth. It would look rather better if the FGN achieved a lasting settlement in the Niger Delta, and if the National Assembly facilitated a smooth and prompt passage of the 2017 budget.
