Analysts at Coronation Research have said they expect a +150 basis points (bps) policy rate hike in 2023 to 20 per cent.
This is coming after the International Monetary Fund (IMF)’s recent perspective on Nigeria via its Article IV Mission.
According to the publication, Nigeria has recovered from the impact of the COVID-19 pandemic on the back of favorable oil prices as well as a boost to consumption patterns.
This was evident in the consecutive quarter-on-quarter (q/q) growth figures recorded in 2022.
Additionally, the report emphasised the importance of reforming fiscal, structural, and exchange rate policies in order to restore macroeconomic stability.
On the fiscal landscape, despite rising oil prices, the general government fiscal deficit is estimated to have widened further in 2022, mainly due to high fuel subsidy costs.
The IMF projected that fiscal deficit could be above 6 per cent of total GDP and public debt could rise to 43 per cent of total GDP by 2027 if revenue mobilization efforts are not strengthened and costly fuel subsidies as well as rising debt servicing costs remain.
While welcoming measures taken by the CBN to tighten liquidity and curb inflationary pressure as well as steps taken to securitize its existing stock of overdrafts, the analysts noted that emphasis was placed on phasing out credit intervention programs driven by the CBN.
“However, further policy rate hikes to tame inflation are encouraged. In our base case scenario, we expect a +150bps policy rate hike in 2023 to 18 per cent. However, in our downturn scenario we see MPR at 20 per cent”, they said.
It will be recalled that the IMF reaffirmed its previous recommendations that the authorities should consider a unified and market-clearing exchange rate in a bid to address persistent fx shortages, reduce capital outflow, and narrow the parallel market premium. Meanwhile, the accretion of FX reserves is projected to remain limited over the medium term.
“From our vantage point, we expect the external reserves level to be at +/- $35 billion in 2023.
The report further stressed the importance of well-targeted social assistance programs. The IMF recommends increasing social spending by up to 1.7 per cent of GDP cumulatively between 2023-2027 (0.4 per cent of total GDP each year) in a bid to cushion the impact of high inflation and expected fuel subsidy removal.
We understand that the World Bank plans to disburse $1.5bn in 2023 with 50 per cent ($750 million) expected to be channeled towards social assistance programs”, analysts at Coronation Research said.