According to Tilewa Adebajo, the CEO of The CFG Advisory, if Nigeria’s economy is allowed to reach its full potential, it may reach $6.
He said that this Thursday in Lagos, the Finance Correspondents Association of Nigeria had its bimonthly forum for June 2024.
He estimated that the nation’s economy had a $5–6 trillion potential, and he added that the economy would develop at an approximate rate of 8% if the government could control inflation to roughly 11%.
During his speech, “Nigeria’s Fiscal Environment in an Era of Monetary Policy Tightening,” Adebajo emphasised that the nation’s debt service has now surpassed both capital and recurrent spending.
He claimed that during a time when foreign direct investment in the nation was less than $1 billion, the nation was forced to use the majority of its income to pay down its debt.
He stated, “Nigeria’s debt levels are now clearly unsustainable. Add to this $10bn from the 2024 budget deficit, and the question begs: is Nigeria heading for the default direction of Ghana, Zambia, and Ethiopia? The discussion on restructuring both domestic and external debt must commence alongside the ongoing economic reforms and revenue drive to avoid Paris and London Club imposition.”
Adebajo recommended that Nigeria bargain with lenders to reorganise and prolong the terms of debt, enabling easier-to-manage repayment schedules and lower interest rates.
He continued by saying that Nigeria was expected to overtake South Africa and Egypt as the continent’s third-largest economy, despite a severe infrastructural deficit and economic concerns.
While outlining the current status of Nigeria’s economic statistics, Adebajo expressed regret that, despite changes aimed at achieving a sustainable growth trajectory, the country’s economy was still experiencing stagflation.
He reported that the FAAC account had increased by 130% to over N1 trillion between May and November 2023 as a result of the establishment of the Nigerian Autonomous Foreign Exchange Market and the elimination of fuel subsidies.
“FDI is at an all-time low of under $1bn; power transmission and distribution infrastructure are still very poor, impacting industry and economic growth; the macroeconomic situation has declined over the last seven years with a loss of $180-200bn in GDP, currently at US$390bn.
“GDP growth of three per cent is not sustainable for our population of 200 million; Nigeria requires 8-10 per cent GDP growth for sustainability; 135 million Nigerians are in the poverty trap, with 40 per cent unemployment and very low job creation and industrial productivity. Dwindling reserves and increasing credit default swap premiums have resulted in Caa1 junk bond rating status for our international credit ratings,” the economist stated.
Although the Nigerian economy’s fundamentals were still strong, he thought that previous economic leadership had been inadequate, which had prevented the country’s economy from reaching its full potential.
“With a new and highly rated economic management team in place, expectations are high. The success or failure of our business projections and the economy will depend on their commitment and sincerity to implement and deliver on their reform policies. The goal is to drive our economy out of stagflation and attain sustainable GDP growth targets,” he emphasised.
Adebajo offered remedies, stating that the government should impose budgetary restraint by cutting back on unnecessary spending, getting rid of unnecessary subsidies, and boosting the effectiveness of public services.
“Expand the tax base, improve tax collection, and introduce new sources of revenue, such as value-added tax and property taxes. Improve transparency and accountability in government spending to build public trust and attract foreign investment. The central bank should continue to employ tight monetary policy to combat inflation, which is often associated with stagflation.
“Maintain positive real interest rates to attract foreign investment and encourage savings. Maintain a competitive exchange rate to stimulate exports and reduce reliance on imports. Collaborate with regional and international organisations to access financial assistance, expertise, and market opportunities. Engage with the public, businesses, and civil society to gain their support for economic reforms,” Adebajo recommended.
