The nation’s external reserves may average $37 billion this year in spite of the current low crude oil prices in the international market. Analysts at FSDH Group say, though slowerForeign Direct Investment (FDI) inflows would persisting in the early part of 2020 due to low interest rate, they still see it dominating total inflows during the year.
The group added that, the country’s Gross Domestic Product (GDP) is expected to average 2.5 per cent, while inflation rate would hover around 11.9 per cent during the year.
The FSDH in its 2020 projections, said, they still see the Central Bank of Nigeria (CBN) intervening throughout this year.
Still on the monetary anticipated move, with rising inflation and imminent inflation pressures following the land border closure and VAT increase, the analysts expects a tight monetary environment in 2020.
To mop-up this excess liquidity, we believe the CBN and the Moneyary Policy Committee (MPC )will adopt several monetary policy tools in 2020. In the first MPC meeting in January, the CBN increased Cash Reserve Ratio (CRR) to 27.5 per cent. This is estimated to mop up an estimated N900 billion from the system.
Loan-to-deposit ratio and the open market operation policies of the CBN will result in increased lending to businesses and liquidity across markets in the year.
On the fiscal policy side, expansionary fiscal policy with higher budget spending in 2020
VAT has been increased from five per cent to 7.5 per cent and this will lead to increased revenue, a significant portion of the revenue will go to state governments.
Federal government is expected to receive N293 billion from VAT increase in 2020.
One key provision of the Finance Act is the exemption of Small businesses with turnover less than N25 million from Company Income Tax (CIT). This will reduce burden on some SMEs and stimulate their growth.
On trade, with the AfCFTA coming into effect in July, gradual removal of tariffs on goods produced within Africa will influence trade outcomes: For instance, Nigeria’s non-oil exports to other African countries should expand significantly. Currently, exports to other African countries account for 20 per cent of total exports.
Nigeria’s imports from other African countries (which represents 8.5 per cent of total imports) is also expected to increase.
Concerning the financial markets, given the impending liquidity following maturities of some Open Market Operation (OMO) securities that would not be reinvested in the market, we anticipate fixed income yields to press downwards in 2020.
