Nigeria’s external reserve has been under pressure following increased demand from foreign investors, who are seeking increased yields from favourable markets.
The external reserves stood at $47.42 billion as of June 7, 2018 from $47.86 billion as of May 10, 2018 data from the website of the Central Bank of Nigeria show.
FSDH Research report revealed that Month-on-Month (M-o-M) growth rate recorded in the external reserves was the lowest level since July 2017.
The 30-day moving average external reserves increased by 0.36 percent, up from US$47.49 billion at end-April to US$47.66 billion at 28 May 2018.
The total turnover at the Investors’ and Exporters’ forex Window (I&E Window) between April 2017 and May 2018 stood at US$50.73 billion. The highest amount was recorded in January 2018.
“Our analysis between August 2017 and May 2018 shows that Nigeria recorded the lowest foreign exchange inflows through the I&E Window in May 2018”, Ayodele Akinwunmi, head of research, said.
The Research arm of FSDH Merchant Bank limited expects the positive domestic and external environment to further lead to external reserves accretion in the short-term and this development should provide further stability for the foreign exchange rate.
In its Monthly Economic and Financial Markets Outlook briefing in Lagos, Akinwunmi looked at Additional Expansionary Policies Required for Inclusive Growth.
He said the recovery path of Nigeria’s economy decelerated in Q1 2018. FSDH Research however observed steady recoveries recorded in both the manufacturing, and information and communication sectors. Agriculture recorded the lowest growth rate since Q1 2016.
An analysis by the firm shows that the labour intensive sectors of the economy such as real estate, construction and trade all contracted in Q1 2018. Thus, additional expansionary policies are required for inclusive growth.
Data from the National Bureau of Statistics (NBS), revealed that the real Gross Domestic Product (GDP) grew by 1.95% in Q1 2018, compared with the growth rate of 2.11 percent recorded in Q4 2017.
Looking at the recovery path in Q1 2018, FSDH Research has revised the GDP growth forecast for 2018 to 2.78%, down from our previous forecast of 3.16%. The major sectors that will lead the recovery in 2018 are: mining and quarrying, agriculture, manufacturing, trade, and information and communication.
“We believe there are financing and investment opportunities in these sectors. The major downside risk to the recovery is the security challenge in some parts of Nigeria. The expected growth in government spending in the second half of the year, once the 2018 budget has been signed into law, should increase economic activities, with positive impacts on the income of households and firms”, Akinwunmi added.
The Nigeria National Assembly (NASS) passed the 2018 Budget of N9.12trn in May 2018. The crude oil benchmark and expenditure were increased from the initial budget which the executive arm of government sent to the NASS, leading to a drop in the budget deficit to N1.95trn.
FSDH Research team observed that there is no provision for Premium Motor Spirit (PMS) subsidy in the 2018 Budget. The NASS noted this development and requested from the executive a supplementary budget to cater for this. The budget deficit will increase when the PMS subsidy is factored in.
FSDH Research believes that the FGN will finance the deficit through issuance of bonds (local and foreign) and this may put upward pressure on yields. FSDH Research estimates that about N1.05tr may be sourced from domestic bond market while about N901bn may be sourced from the international market to fund the budget deficit
FSDH Research forecasts a further drop in the inflation rate to 11.50 percent in May 2018, down from 12.24 percent in April.
“We expect the inflation rate to drop to a single digit in July 2018 provided there is no food shortage in the country due to of the current rising crisis in the food producing areas in the country”, said Akinwunmi.
HOPE MOSES-ASHIKE
