February 13, (THEWILL) – A Pan-African Credit Rating Agency, Agusto & Co. has identified three major economic variables that are likely to have far-reaching impacts on Nigeria’s Gross Domestic Product (GDP) gowth in 2024.
The leading provider of industry research and knowledge in Nigeria & Sub-Saharan Africa made this revelation at the bi-monthly forum of the Finance Correspondents Association of Nigeria (FICAN) held in Lagos, through its Head, Financial Institutions Ratings, Mr. Ayokunle Olubunmi.
According to Mr Olubunmi, the level of interest rate, inflation rate and the rate of foreign exchange will drive Nigeria’s GDP growth to 2.6 percent in severe case scenario, 3 percent as a base case scenario, but at best, will not exceed 5 percent this year.
Specifically, Olubunmi noted that interest rate is a very good tool that the monetary policy authorities use to monitor and fight inflation and even exchange rates.
He said that everything in Nigeria today is pointing towards higher interest rates because one of the reasons why there is a lot of pressure on the naira is that there is a low interest rate environment, stressing that high rates moderate economic activities.
“That is why there are high expectations that the Monetary Policy Committee (MPC) of the CBN will increase interest rate by about 500 basis point at the forthcoming MPC meeting this month”, he said.
However, the Nigerian government is borrowing massively and if interest rate is high, the cost of government services will also be high, he noted.
“This might discourage the MPC from raising the rates too high”, he said, adding that the average interest rate for the year might hover around 16 and 18 percent.
Meanwhile, the 364-day treasury bills stop rate increased to 19 percent per annum on Wednesday. February 7, 2024.
The 182-day and 91-day bills also rose to 18 percent and 12.2 percent respectively, and some analysts said the rates will likely continue to rise in the coming weeks as the CBN intensifies efforts to combat exchange rate depreciation.
On inflation, he said “Insecurity is one of the major drivers for inflation. Unfortunately, insurgency, kidnapping and general insecurity are rife in the middle belt where they produce a lot of things that we consume.”
Nigeria’s inflation rate has been on the rise for 11 consecutive months, reaching a new high in December 2023, according to the National Bureau of Statistics (NBS).
The annual inflation rate rose to 28.92 per cent in December from 28.20 per cent in November.
According to Olubunmi, aside from insecurity, the increase in exchange rate is also going to affect inflation. And because Nigeria is an import dependent country, rising cost of importation will have effects on the inflationary situation which will invariably affect growth.
He said Nigeria’s foreign exchange earnings this year will depend majorly on oil revenue and that the price of crude oil which averaged $80pbl in 2023, will likely settle around $70 to $75pbl in 2024 and that Nigeria’s crude oil production cannot exceed 1.5 barrels per day in 2024.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.