Mr. Banjo Adegbohungbe, Managing Director of Coronation Merchant Bank, has stated that the recent naira redesign policy could help to mitigate Nigeria’s inflation risks.
This was stated by Adegbohungbe at the unveiling of the company’s economic review and 2023 outlook titled ‘Baton Hand-off: Economic Headwinds and Expected Resilience’ in Lagos.
It is an election year, there are concerns around demand-pull inflation on the back of expected spending associated with electioneering. However implementation of the recent naira redesign policy could assist with abetting the inflation risk, he said.
He also expressed concern about policy continuity following the election, as well as an expected lull in economic activity as a result of the transition period.
According to Adegbohungbe, Nigeria’s GDP growth is expected to continue, albeit at a slower pace.
He stated that the impact of recent global economic shocks on the Nigerian economy was noticeable in 2022 and is expected to continue in 2023.
Bank’s preparedness
He explained that compared to a previous low point in the country’s economic cycles, the banking industry is better prepared to weather the storm. He said:
Capital adequacy and liquidity ratios are much higher, governance is more effective and foreign currency balance sheets are more resilient. In spite of current macroeconomic headwinds, industry non-performing loans have been relatively lower than earlier anticipated. In 2023, our in-house economic intelligence projects the banking industry will face pressure from elevated inflation, higher interest rates and fx liquidity constraints. Regardless, there will be opportunities to unlock new growth, particularly in the second half of the year.
Inflation risks
Adegbohungbe noted that 2023 will bring a variety of economic conditions and that the bank expects the current inflation trend to continue in both advanced and emerging economies.
He added that the effects of monetary policy tightening are expected to continue, but at a slower pace, given the global inflation outlook, which points to gradual moderation in H2 2023.
He stated that forex liquidity constraints are likely to persist in the near term, particularly in the parallel market, and that as a result, we have factored in steady depreciation in our forecast.
Fixed income
Adegbohungbe noted that as for the fixed income market, considering the maturity profile of current FGN, debt instruments, and liquidity could improve in H1 2023.
But we expect continuous tightening in the inter-bank market as the FGN front-loads domestic borrowing in 2023 due to its projected budget deficit and our expectations of reduced activity with regards to external borrowing, he said.
Fuel subsidy
Meanwhile, Chinwe Egwim, Chief Economist and Head of Economic Research/Intelligence at Coronation Merchant Bank, stated that the bank expects fuel subsidy costs to remain high and the NNPC’s ability to remit to the FGN to be challenged, at least in the first half of 2023.
She said:
The FGN plans to halt PMS subsidy payment by end of H1’23. According to the 2023 – 2025 medium-term expenditure framework and fiscal strategy paper, only N3.36 trillion will be provided for PMS subsidy in H1 2023. This is 1.7 trillion higher than the amount spent in the corresponding period of 2022 (N1.6 trillion).
For domestic production, we note that the Amukpe-Escravos pipeline could assist with reducing oil theft and vandalism. This is in addition to the online portal and pipeline surveillance contracts with the former militant leader Government Ekpemupolo. These initiatives could assist in improving our production in 2023.
