•Advises FG to use external borrowing to rebuild FX reserves, stabilise naira
By Uche Usim
Economist Intelligence Unit (EIU), a 78-year old, London-based firm that forecasts economic trends, political forces and industry developments in every country in the world has predicted that inflation in Nigeria will hit 30.3 per cent before the year runs out.
EIU stated this in its latest country report released at the weekend.
It said: “Consumer price inflation reached a recent peak of 29.9 per cent year on year in January. Given probable deficit monetisation, negative real short-term interest rates and a 45 per cent currency devaluation in February, we forecast that average inflation will rise to 30.3 per cent in 2024, from 24.7 per cent in 2023. “The 2024 average reflects the fact that petrol price increases in June 2023 will drop out of the year-on-year calculation from mid-2024, preventing the rate from being even higher. Assuming the naira stabilises, average inflation should fall to 20.7 per cent in 2025 and 11.7 per cent in 2028. Inflation will thus.
remain well above the 6-9 per cent target range throughout the forecast period, owing to expected VAT rate increases, insecurity in agricultural regions (raising food prices), Nigeria’s infrastructure deficit, periodic monetisation of fiscal deficits, currency weakness and a general inflation bias within economic policymaking”, it explained.
The EIU also expects that foreign borrowing will be used to rebuild foreign reserves and that the naira will stabilise towards the end of 2024.
“Accounting for further near-term losses, we expect an end-2024 rate of N1,770:US$1, compared with about N1,600:US$1 at end-February.
“However, this forecast is finely balanced. Any number of knocks to confidence could cause a sharper weakening. Alternatively, given the naira is increasingly appearing undervalued in real terms, the rate could end up stronger if the CBN tightens monetary policy more aggressively than we expect”, it added.
EIU also expects Nigeria’s president, Bola Tinubu to remain in power until at least 2027, when his first term ends, but his time in office will be highly challenging.
“Despite having a weak mandate, only 8.8 million Nigerians voted for him out of a population of 220 million.
“Mr Tinubu has embarked on the biggest economic shake-up in a generation, rapidly rolling out unpopular market reforms and dismantling vehicles for patronage and corruption.
“In theory, these reforms are needed to put Nigeria on a higher growth path, but implementation has been hasty and inflation has been allowed to rise to decades-long highs. As the crisis is distinctly policy induced, there is a serious risk of mass protests and strikes”, it stated.